The Rosewood Resort and the Blaze Mountain Resort are located in Ontario's fastest-growing four-season re- sort area.
Question:
From 2004 to 2006, both resorts experienced a period of decline where the number of visitors to the area dwindled. Because of this, at the end of the 2006 fiscal year, each company recorded an impairment loss of $1,000,000 on its buildings because the recoverable amount of these assets did not exceed their carrying amount at that time.
Since 2006, the number of visitors to each resort has risen steadily. Resort bookings have dramatically increased be- cause the country's largest developer of destination resorts has opened a ski village, chalets, lodges, and a golf resort in the area. As a result, by the end of the 2012 fiscal year, the recoverable amount of the building, of each resort now exceeds their carrying amount, as shown below along with other pertinent information.
Instructions
(a) Ignoring depreciation, at the end of 2012 can Rosewood reverse some or all of the impairment loss recorded in 2006? If so how much? What adjusting entry would be made to record this reversal?
(b) Ignoring depreciation, at the end of 2011 can Blaze Mountain reverse some or all of the impairment loss recorded in 2006? If so how much? What adjusting entry would be made to record this reversal?
(c) Calculate the profit margin, asset turnover, and return on asset ratios for both companies based on the unadjusted amounts provided above. Recalculate each ratio after taking into account any impairment loss reversals if applicable.
(d) Based on the ratios calculated after taking into effect any impairment loss reversals, if applicable, which company is performing better? Why?
(e) If you were a banker deciding whether to provide financing to Rosewood or Blaze Mountain, would you prefer each company to use the same accounting standards? If you could choose which standards each company had to report under, which standards might be the most helpful in making your financing decisions?
(f) If different accounting standards produce different account balances on financial statements, what additional information may users want to have in order to evaluate the nature and performance of long-lived assets?
Step by Step Answer:
Financial Accounting Tools for Business Decision Making
ISBN: 978-1118024492
5th Canadian edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine