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Property owners offer the following data:

Sunshine Resorts and Moonstar Resort

Balance Sheets

December 31, 2010                        Sunshine resorts                   Moonstar Resort
Cash                                                  $31,000                                 $63,000
Accounts receivable                               20,000                                   18,000
Inventory                                             64,000                                   70,000
Land                                                  270,000                                  669,000
Buildings                                            1,200.00                                 1,500.00
accumulated depreciation-buildings         -20,000                                 -100,000
furniture                                              750,000                                  900,000
accumulated depreciation-furniture         -75,000                                  -180,000
total assets                                        2,240.00                                  2,940.00
total liabilities                                      1,300.00                                  1,000.00
owner's equity                                      940,000                                  1,940.00
total liabilities and owners equity            2,240.00                                  2,940.00

Income statements for last year report net income of $500,000 for Sunshine Resort and $400,000 for Moonstar Resort.

Inventories: Sunshine resorts use FIFO inventory method, and Moonstar Resort uses LIFO. If Sunshine had used LIFO, its ending inventory would have been $7000 lower.

Plant assets: Sunshine uses straight-line depreciation method and the estimated useful life of 40 year foe buildings and 10 years for furniture. Estimated residual values for furniture: $0, and for buildings: $400,000. Sunshine building is one-year old. Annual depreciation expense for furniture is 75,000 and $20,000 per year on the buildings.

Moonstar Resort uses double-declining-balance method and depreciates buildings over 30 years. Furniture, is also one-year old, is being depreciated over 10 years. First year depreciation expense for furniture is $180,000 and $100,000 for the building.

Accounts Receivable: Sunshine uses direct prepare-off method for uncollectibles, Moonstar Resort uses allowance method. The Sunshine owner estimates that $ 2,000 of the company's receivables is uncertain. Moonstar Resort receivables are already reported at net attainable value

problems:

To compare two resorts, transform Sunshine net income to accounting methods and estimated useful lives used by Moonstar Resort.

Compare two resorts' net incomes after you have revised Sunshine's figures. Which resort looked better at outset? And which looks better when they are placed on the equal footing?

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M99395

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