The property owners provide the following data:
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Gold Rush Resorts and Mountain Hideway
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Balance Sheets
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December 31, 2010
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Gold Rush resorts
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Mountain Hideway
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Cash
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$31,000
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$63,000
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Accounts receivable
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20,000
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18,000
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inventory
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64,000
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70,000
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land
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270,000
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669,000
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buildings
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1,200.00
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1,500.00
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accumulated depreciation-buildings
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-20,000
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-100,000
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furniture
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750,000
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900,000
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accumulated depreciation-furniture
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-75,000
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-180,000
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total assets
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2,240.00
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2,940.00
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total liabilities
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1,300.00
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1,000.00
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owner's equity
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940,000
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1,940.00
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total liabilities and owners equity
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2,240.00
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2,940.00
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Income statements for the last year report net income of $500,000 for Gold Rush Resort and $400,000 for Mountain Hideway.
Inventories: Gold rush resorts use the FIFO inventory method, and Mountain hideway uses LIFO. If Gold Rush had used LIFO, its ending inventory would have been $7000 lower.
Plant assets: Gold rush uses the straight-line depreciation method and an estimated useful life of 40 year foe buildings and 10 years for furniture. Estimated residual values are $400,000 for buildings and $0 for furniture. Gold rush buildings are one-year old. Annual depreciation ecxpense for buildings is $20,000 and 75,000 per year on the furniture.
Mountain hideway uses the double-declining-balance method and depreciates buildings over 30 years. The furniture, also one-year old, is being depreciated over 10 years. First year depreciation expense for the building is $100,000 and $180,000 for the furniture.
Accounts Receivable: Gold rush uses the direct write-off method for uncollectibles, Mountain hideway uses the allowance method. The Gold rush owner estimates that $ 2,000 of the company's receivables is doubtful. Mountain hideway receivables are already reported at net realizable value
Requirements:
To compare the two resorts, convert gold rush net income to the accounting methods and the estimated useful lives used by Mountain hideway.
Compare the two resorts' net incomes after you have revised gold rush's figures. Whish resort looked better at the outset? Which looks better when they are placed on equal footing?