Case 3 4: Pinetree Motel
Approach
This case treats the transition from cash to accrual accounting; also, the inherent difficulties in comparison of data with industry averages are illustrated. The case does not require a full 80 minutes of class time, so I use the final portion of time for review.
Comments on Questions
The operating statement called for in Question I is shown below. For many terms—e.g., revenues, advertising, depreciation?is no difficulty in fitting Pinetree’s account names with the journal’s standard format; but for other items, there are problems:
1. The Kims’ drawings conceptually should be divided between payroll costs and administrative/general, since the Kims’ apparently perform both operating and administrative tasks.
2. Some students may treat replacement of glasses, bed linens, and towels as general expense rather than as direct operating expense (although I feel the latter is more appropriate).
3. Some students may treat payroll taxes and insurance as a general expense; nevertheless, it properly is part of payroll costs....