Case Study

It had been an exhausting two weeks, but JoAnna was very pleased with the way her hotel staff had performed. From tornado watch, to warning, to the too close for comfort sighting of a tornado that had missed her full-service hotel by only two miles, her team was understandably nervous during the storm. Still, they had performed flawlessly.

Ultimately, the staff had gotten through the ordeal and proceeded to do great job housing the many individuals whose homes were damaged by the winds, as well as the disaster relief officials who came to the area to help. Now, thanks to a great effort on the part of her sales staff, the hotel had been awarded the Federal Emergency Management Agency (FEMA) contract to house its federal aid workers, as well as a large number of Red Cross volunteers.

Beginning immediately, FEMA estimates it will need 110 of the hotel's 200 rooms for a period of at least four months. The impact on the hotel's business during that time period will be immense, ensuring a virtual sell-out every night. This nearly 100% occupancy will definitely be a change from the average 65% occupancy JoAnna had forecasted for these months.

1.Identify three Accounts within the hotel's financial statements that will be directly affected by the new contract, and a brief description of the effect.

a.________________________________________________________

b.________________________________________________________

c.________________________________________________________

2.Identify how these three areas will affect the hotel's Net Income over the next four months.

a.________________________________________________________

b.________________________________________________________

c.________________________________________________________

3.Assume that FEMA is billed monthly by the hotel and pays its bills within (but rarely before) 90 days. What affect will this contract have on JoAnna's current cash accounts? What would you advise her to do?

a.________________________________________________________

b.________________________________________________________

c.________________________________________________________