East land Company and West side Company are competing businesses. Both began operations 6 years ago and are quite similar in most respects. The current statements of financial position data for the two companies are shown on the next page.

You have been engaged as a consultant to conduct a review of the two companies. Your goal is to determine which of them is in the stronger financial position. Your review of their financial statements quickly reveals that the two companies have not followed the same accounting practices. The differences and your conclusions regarding them are summarized below.
1. Eastland Company has used the allowance method of accounting for bad debts. A review shows that the amount of its write-offs each year has been quite close to the allowances that have been provided. It therefore seems reasonable to have confidence in its current estimate of bad debts. Westside Company has used the direct write-off method for bad debts, and it has been somewhat slow to write off its uncollectible accounts. Based upon an aging analysis and review of its accounts receivable, it is estimated that CHF18,000 of its existing accounts will probably prove to be uncollectible.
2. Eastland Company estimated a useful life of 12 years and a residual value of CHF30,000 for its plant and equipment. It has been depreciating them on a straight-line basis. Westside Company has the same type of plant and equipment. However, it estimated a useful life of 10 years and a residual value of CHF10,000. It has been depreciating its plant and equipment using the double-declining-balance method.
Based upon engineering studies of these types of plant and equipment, you conclude that Westside€™s estimates and method for calculating depreciation are the more appropriate.
3. Among its current liabilities, Eastland has included the portions of non-current liabilities that become due within the next year. Westside has not done so. You find that CHF16,000 of Westside€™s CHF82,000 of non-current liabilities are due to be repaid in the current year. 

Instructions
(a) Revise the statements of financial position presented above so that the data are comparable and reflect the current financial position for each of the two companies.
(b) Prepare a brief report to your client stating your conclusions.

Transcribed Image Text:

Eastland Westside Company Company Plant and equipment Accumulated depreciation-plant and equipment Inventory Accounts receivable CHF257,300 CHF255,300 (112,650) 463,900 304,700 (13,600) 63,300 (189,850) 515,200 302,500 -0- Allowance for doubtful accounts Cash 48,400 Total assets CHF960,950 CHF933,550 Equity Non-current liabilities 442,750 78,000 440,200 420,050 82,000 431,500 Current liabilities Total equity and liabilities CHF960,950 CHF933,550