Case Analyze (201=20 )

Sheraton Corporation, a Chinese affiliate of a major U.S.-based hotel chain, starts the calendar year with 100 million CNY cash equity investment. It immediately acquires a refurnished hotel in Shanghai for CNY 90 million. Owing to a favorable tourist season, Sheraton Corporations rental revenues were CNY 14.4 million for the year. Operating expenses of CNY 8,640,000 together with rental revenues were incurred uniformly throughout the year. The building, comprising 80 percent of the original purchase price (balance attributed to land), has an estimated useful life of 20 years and is being depreciated in straight-line fashion. By year-end, the Chinese consumer price index rose to 420 from an initial level of 300, averaging 360 during the year.

Required:

a. Prepare Income statement and Balance sheet for Sheraton Corporation s first year of operations in terms of the historical cost model and the historical cost - constant purchasing power model.

b. Compare and evaluate the information content of rateof Return on Assets statistics computed using each of these models.

C. assume that Chinas construction cost index increasedby 80 percent during the year, while the price of vacantland adjacent to Sheraton Corporations hotel increasedin value by 90 percent.

Required:

Use the new information to restate the value ofSheratons nonmonetary assets. What would SheratonCorporations income statement and balance sheet looklike under the current-cost model?

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