Comprehensive Problem for Part 2 Comparing Two Businesses Suppose you are ready to invest in a small resort property. Two locations look promising: Nootka Resort in Victoria, British Columbia, and Critter Cove Resort in Nova Scotia. Each place has its appeal, but Nootka Resort wins out. The main allure is that the price is better. The property owners provide the following data: Cash Accounts receivable Inventory Land Buildings Accumulated amortization-buildings Furniture and fixtures Accumulated amortization-furniture and fixtures Total assets Total liabilities Owner's equity Total liabilities and owner's equity Nootka Resort $ 18,250 Critter Cove Resort S 34,150 10,950 9,800 39,700 36,600 144,750 358,000 960,000 1,048,600 (63,772) (440,100) 401,500 499,150 (120,500) $1,390,878 $ 601,500 789,378 $1,390,878 (286,400) $1,259,800 $ 539,550 720,250 $1,259,800 Income statements for the last three years report total net income of $284,100 for Nootka Resort and $151,400 for Critter Cove Resort. Inventories: Nootka Resort uses the FIFO inventory method, and Critter Cove Resort uses the weighted-average method. If Nootka Resort had used weighted-average, its reported inventory would have been $3,750 lower. If Critter Cove Resort had used FIFO, its reported inventory would have been $3,200 higher. Three years ago there was little difference between weighted-average and FIFO amounts for Nootka and between weighted-average and FIFO amounts for Critter Cove. Property, Plant, and Equipment: Nootka Resort uses the straight-line amortization method and an estimated useful life of 35 years for buildings and 7 years for furniture and fixtures. Estimated residual values are $216,000 for buildings and $0 for furniture and fixtures. Nootka Resort's buildings and furniture and fixtures are three years old. Critter Cove Resort uses the double-declining-balance method and amortizes buildings over 35 years with an estimated residual value of $245,000. The furniture and fixtures, now 2 years old, are being amortized over 7 years with an estimated residual value of $45,450. Accounts Receivable: Nootka Resort uses the direct write-off method for uncollectibles. Critter Cove Resort uses the allowance method. The Nootka Resort owner estimates that $1,075 of the company's receivables are doubtful. Prior to the current year, uncollectibles were insignificant. Critter Cove Resort's receivables are already reported at net realizable value. Required 1. To compare the two resorts, convert Nootka Resort's net income to the accounting methods and the estimated useful lives used by Critter Cove Resort. 2. Compare the two resorts' net income after you have revised Nootka Resort's figures. Which resort looked better at the outset? Which resort looks better when they are placed on equal footing