You are a financial analyst charged with evaluating the asset efficiency of companies in the hotel industry.

The financial statements for Hilton Hotels include the following note:

Required: 1. Assume that Hilton followed this policy for a major construction project this year. How doc^

Hilton's policy affect the following ( + lor increase, - for decrease, and NE for no effect).

1

a. Cash Hows.

/>. Fixed asset turnover ratio. 2. Normally, how would your answer to requirement (1/') affect your evaluation o\ Hilton's effectiveness in utilizing fixed assets? 3. II the fixed asset turnover ratio decreases due to interest capitalization, does this change indicate a real decrease in efficiency? Why or win not?

Transcribed Image Text:

Summary of Significant Accounting Policies Property, Equipment and Depreciation Property and equipment are stated at cost. Interest incurred during construction of facilities is capitalized and amortized over the life of the asset.