Reference no: EM132740319

Bates Boatyard

• Upon returning to civilian life after several years in the Navy, Sarah Bates sought a small business that she might buy. Being a thrifty person with no dependents, she had build up a fair amount of savings, the accumulation of which had been aided by the fact that she had seen considerable duty in areas where there had been nothing to buy.

• Bates finally located a small boatyard for sale in a town on the coast of Maine where she had spent many summers. The proprietor was getting along in years and wished to retire. He was offering the yard for sale at what Bates believed to be a fair starting price that could probably be worked down to a very reasonable figure through negotiation.

• It is not necessary to go into the details of investigation and negotiation. Bates bought the yard. The business being somewhat larger than she could finance alone, she had borrowed the additional funds require from a friend, giving a mortgage on the property as security.

• Bates realized the need for adequate accounting records if she was to manage the business successfully. The records on hand were for cash receipts and disbursements only. Actual balance sheets and profit and loss statements that had been prepared for the former owner for tax purposes were also available. A person who was a reasonably capable bookkeeper and general office factotum had been inherited with the business.

• Having had a course in accounting in college, Bates felt capable of using cost and financial information with some intelligence, but did not feel capable of initiating a suitable accounting system. Knowing that you, an old friend of hers, have been studying such matters, she has asked your advice as to what kind of accounting records should be kept and what kind of financial and cost information should be developed to control operations and to make proper charges to customers for services rendered. In addition to the information above, she has told you the following facts about the business.

• One of the properties of the business was a large shed for the winter storage of boats. Being the most suitable building in the locality for such storage, there was great demand for space in it on the part of owners of expensive boats among the summer people.

• There was plenty of empty land on the shorefront for outdoor storage. In most cases, where space was rented for this purpose, the yard was also hired to haul the boats in on equipment that it had for the purpose.

• In the spring and from time to time during other seasons, there was a goodly amount of business available in painting and repair work on boats.

• There was a large-sized work shed containing woodworking tools and space in which to construct about six boats up to 40 feet in length at one time. Larger boats could be built outside when the weather was suitable, but Bates did not expect to get many, if any, orders for such craft. She did, however, expect to have from one to six boats up to 40 feet in length in construction at all times, some for local fishermen and some for summer people.

• The property included a good-sized wharf and float, a store for the sale of marine hardware and supplies, and gasoline pumps. There being no yacht club in the town, the summer people who were boating-minded tended to gather around this wharf and store. Bates intended to encourage this and refreshments to the items handled by the store.

Problem 1: What would you tell Bates considering her accounting needs emphasizing the uses of the accounting information for all stakeholders within and without the business?

Problem 2: The boatyard operates how many business?

Problem 3: What are the accounting information needs for managing each of these business?

Problem 4: What do you recommend that Mrs. Bates do to establish her accounting information system?