The Rouse Company is a real estate development firm with

The Rouse Company is a real estate development firm with ownership of shopping malls, office buildings, hotels, and undeveloped land throughout the United States. In 1996,Rouse paid $549 million to purchase Las Vegas real estate from the heirs of billionaire Howard Hughes.
Prior to 1997, Rouse provided a current value balance sheet in addition to the traditional historical cost balance sheet. Rouse included the following note in its 1996 annual report:
CURRENT VALUE REPORTING
The Company’s interests in operating properties, land held for development and sale and certain other assets have appreciated in value and, accordingly, their aggregate current value substantially exceeds their aggregate cost basis net book value determined in conformity with generally accepted accounting principles. The current value basis financial statements present information about the current values to the Company of its assets and liabilities and the changes in such values. The current value basis financial statements are not intended to present the current liquidation values of assets or liabilities of the Company or its net assets taken as a whole.
Management believes that the current value basis financial statements more realistically reflect the underlying financial strength of the Company. The current values of the Company’s interests in operating properties, including interests in unconsolidated real estate ventures, represent management’s estimates of the value of these assets primarily as investments. These values will generally be realized through future cash flows generated by the operation of these properties over their economic lives. The current values of land held for development and sale represent management’s estimates of the value of these assets under long-term development and sales programs. The Asset section of Rouse Company’s balance sheet as of December 31, 1996, follows.

The Rouse Company is a real estate development firm with

1. Examine the Asset section of The Rouse Company’s 1996 balance sheet and answer the following questions:
(a) Why is there no accumulated depreciation on operating properties under the current value basis?
(b) The total difference between the current value of Rouse’s assets and the cost basis of those assets is $1,932,405 ($5,575,857 _ $3,643,452). Compute the difference for just the current assets. Comment.
(c) Is it possible for the current value basis of Rouse’s total assets to be less than the cost basis? Explain.
2. What characteristic of The Rouse Company has caused it to voluntarily emphasize its current value disclosures to the extent that those supplemental disclosures are given equal prominence with the cost-basis balance sheet numbers?
3. Assume that The Rouse Company is required to make a journal entry to convert “Property and deferred costs of projects” from the net cost basis of $2,822,775 to the current value basis. Make the necessary journal entry. Also, discuss whether there are any income tax issues that should be considered in making the journal entry.
4. The Rouse Company does not include current value basis financial statements as part of its quarterly financial statements. Why do you think this is so?
5. The current value basis balance sheet is not in conformity with GAAP in the United States. As such, those statements are not included within the scope of the standard auditor’s opinion. How can The Rouse Company give financial statement users some credible assurance that the current value numbers arereliable?

Members

  • Access to 1 Million+ Textbook solutions
  • Ask any question from 24/7 available
    Tutors
$9.99
VIEW SOLUTION
OR

Non-Members

Get help from Managerial Accounting Tutors
Ask questions directly from Qualified Online Managerial Accounting Tutors .
Best for online homework instance.