Question

Nilam Patel is the primary stockholder in two hotel corporations. One corporation owns a 90‐room economy property located in the suburbs of a large western town. The other corporation is a 350‐room full‐service convention hotel in the downtown city center for which Nilam has employed a management company to operate the property. Nilam is preparing balance sheets for both properties using a common size format. Complete the two balance sheets. Then answer the questions that follow.

December 31		Common Size
	90‐Room Property	350‐Room Property	90‐Room Property (%)	350‐Room Property (%)
ASSETS
Current Assets
Cash
Cash in House Banks		$86,000
Cash in Demand Deposits	85,000	330,250
Total Cash	103,500	416,250
Short‐Term Investments	56,000	165,000
Receivables
Accounts Receivable	150,000	327,150
Notes Receivable	35,000	136,250
Other	750	30,800
Total Receivables	185,750	494,200
Less Allowance for Doubtful Accounts	19,250
Net Receivables	166,500	431,900	1.4	1.1
Due from Management Company	—	50,000	0.0	0.1
Food Inventories	15,125	69,750	0.1	0.2
Beverage Inventories	—	42,550	0.0	0.1
Gift Shop Inventories	300	6,950	0.0	0.0
Supplies Inventories	6,550	13,550	0.1	0.0
Prepaid Expenses	56,000	120,100	0.5	0.3
Deferred Income Taxes—Current	48,000	135,000	0.4	0.3
Total Current Assets
Investments	72,500	274,150	0.6	0.7
Property and Equipment
Land	2,000,000	8,450,000
Building	6,500,000	18,500,000
Leaseholds and Leasehold improvements	2,037,250	5,850,000
Furnishings and Equipment	1,288,000	3,105,000
Total Property and Equipment	11,825,250	35,905,000
Less Accumulated Depreciation and Amortization	575,000	2,575,000
Net Property and Equipment	11,250,250	38,480,000
Other Assets
Intangible Assets	—	75,000	0.0	0.2
Deferred Income Taxes—Non‐current	66,000	158,000	0.6	0.4
Operating Equipment	35,100	111,000	0.3	0.3
Restricted Cash	25,000	95,000	0.2	0.2
Total Other Assets	126,100	439,000	1.1	1.1
TOTAL ASSETS			100.0	100.0
LIABILITIES AND OWNERS' EQUITY
Current Liabilities
Notes Payable
Banks	17,500	116,250	0.1	0.3
Others	8,000	17,500	0.1	0.0
Total Notes Payable	25,500	133,750	0.2	0.3
Accounts Payable	2,500	125,100
Accrued Expenses	45,000	42,500
Advance Deposits	500	42,250
Income Taxes Payable	15,000	78,000
Deferred Income Taxes—Current	40,000	235,000
Current Maturities of Long‐Term Debt	420,000
Other	50,000	58,000
Total Current Liabilities	598,500	2,399,600	5.0	5.9
Long‐term Debt, Net of Current Maturities
Mortgage Note		24,383,030
Obligations Under Capital Leases	18,000	385,000	0.2	0.9
Total Long‐Term Liabilities	6,868,000
Owners' Equity
Common Stock	500,000	2,000,000
Paid in Capital		8,711,500
Retained Earnings	879,325	2,765,070
Total Owners' Equity	4,434,325	13,476,570
TOTAL LIABILITIES AND OWNERS' EQUITY			100	100

1. What was the amount of cash in the 90‐room property's Cash in House Banks account at year end?
2. What is the amount of Allowance for Doubtful Accounts in the 350‐room property? Do you think it is excessive? Explain your answer?
3. What would explain the lack of a beverage inventory value in the 90‐room hotel?
4. What was the dollar amount of Total Assets in the 90‐room hotel?
5. What was the dollar amount of Total Assets in the 350‐room hotel?
6. What was the dollar amount of Current Maturities of Long‐Term Debt in the 350‐room property? Why is that amount likely so much higher than for the 90‐room property?
7. What was the dollar amount of Paid in Capital for the 90‐room property?
8. What is the Owners' Equity percentage of Total Assets in the 90‐room property? What is it in the 350‐room property?

Answer 1

Dec-31	Common Size
	90‐Room Property	350‐Room Property	90‐Room Property (%)	350‐Room Property (%)
ASSETS
Current Assets
Cash
Cash in House Banks	18,500	$86,000	0.16	0.21
Cash in Demand Deposits	85,000	3,30,250	0.71	0.81
Total Cash	1,03,500	4,16,250	0.87	1.02
Short‐Term Investments	56,000	1,65,000	0.47	0.41
Receivables
Accounts Receivable	1,50,000	3,27,150	1.26	0.8
Notes Receivable	35,000	1,36,250	0.29	0.34
Other	750	30,800	0.01	0.08
Total Receivables	185750	4,94,200	1.56	1.22
Less Allowance for Doubtful Accounts	-19,250	-62,300	-0.16	-0.15
Net Receivables	1,66,500	4,31,900	1.4	1.1
Due from Management Company	—	50,000	0	0.12
Food Inventories	15,125	69,750	0.1	0.2
Beverage Inventories	—	42,550	0	0.1
Gift Shop Inventories	300	6,950	0	0
Supplies Inventories	6,550	13,550	0.1	0
Prepaid Expenses	56,000	1,20,100	0.5	0.3
Deferred Income Taxes—Current	48,000	1,35,000	0.4	0.3
Total Current Assets	4,51,975	14,51,050	3.8	3.57
Investments	72,500	2,74,150	0.6	0.7
Property and Equipment
Land	20,00,000	84,50,000	16.81	20.79
Building	65,00,000	1,85,00,000	54.62	45.52
Leaseholds and Leasehold improvements	20,37,250	58,50,000	17.12	14.39
Furnishings and Equipment	12,88,000	31,05,000	10.82	7.64
Total Property and Equipment	1,18,25,250	3,59,05,000	99.36	88.34
Less Accumulated Depreciation and Amortization	-5,75,000	25,75,000	-4.83	6.34
Net Property and Equipment	1,12,50,250	3,84,80,000	94.53	94.68
Other Assets
Intangible Assets	—	75,000	0	0.2
Deferred Income Taxes—Non‐current	66,000	1,58,000	0.6	0.4
Operating Equipment	35,100	1,11,000	0.3	0.3
Restricted Cash	25,000	95,000	0.2	0.2
Total Other Assets	1,26,100	4,39,000	1.1	1.1
TOTAL ASSETS	1,19,00,825	4,06,44,200	100	100
LIABILITIES AND OWNERS' EQUITY
Current Liabilities
Notes Payable
Banks	17,500	1,16,250	0.1	0.3
Others	8,000	17,500	0.1	0
Total Notes Payable	25,500	1,33,750	0.21	0.33
Accounts Payable	2,500	1,25,100	0.02	0.31
Accrued Expenses	45,000	42,500	0.38	0.1
Advance Deposits	500	42,250	0	0.1
Income Taxes Payable	15,000	78,000	0.13	0.19
Deferred Income Taxes—Current	40,000	2,35,000	0.34	0.58
Current Maturities of Long‐Term Debt	4,20,000	16,85,000	3.53	4.15
Other	50,000	58,000	0.42	0.14
Total Current Liabilities	5,98,500	23,99,600	5.03	5.9
Long‐term Debt, Net of Current Maturities
Mortgage Note	68,50,000	2,43,83,030	57.56	59.99
Obligations Under Capital Leases	18,000	3,85,000	0.15	0.95
Total Long‐Term Liabilities	68,68,000	2,47,68,030	57.71	60.94
Owners' Equity
Common Stock	5,00,000	20,00,000	4.2	4.92
Paid in Capital	30,55,000	87,11,500	25.67	21.43
Retained Earnings	8,79,325	27,65,070	7.39	6.8
Total Owners' Equity	44,34,325	1,34,76,570	37.26	33.16
TOTAL LIABILITIES AND OWNERS' EQUITY	1,19,00,825	4,06,44,200	100	100