Premium Essay

Grennell Farm Case

In: English and Literature

Submitted By marygrace0301
Words 1084
Pages 5
Grennell Farm (Case from Accounting Text and Cases twelfth edition)
Early in 2006, Denise Grey was notified by a lawyer that her recently deceased uncle had willed her the ownership of a 2,000-acre wheat farm in Iowa. The lawyer asked whether Grey wanted to keep the farm or sell it.
Grey was an assistant vice president in the consumer credit department of a large New
York bank. Despite the distance between New York and Iowa, grey was interested in retaining ownership of the farm if she could determine its profitability. During the last 10 years of his life,
Jeremiah Grennell had hired professional managers to run his farm while he remained in semiretirement in Florida.
Keeping the farm as an investment was particularly interesting to Grey for the following reasons. 1) Recent Grain deals with foreign countries had begun to increase present farm commodity prices, and many experts believed these prices would remain high for the next several years.
2) Although the number of small farms had decreased markedly in the last 20 years,
Grennell’s use of mechanization and new hybrid seed varieties could be very profitable. 3) After some downward movement in the 1990’s the value of good farmland in Iowa was beginning to appreciate at about 10 percent a year.
Included in the lawyer’s letter were data on revenues and expenses for 2005 and certain information on balance sheet items, which are summarized below
Beginning Inventory
2005 Wheat production
Shipped to grain elevator
Grain Stored at farm at end of 2005

0 bushels
210,000 bushels
180,000 bushels
30,000 bushels

2005 Expenses for Grennell Farm
A. Production Cost per Bushel
Seed
Fertilizer and chemicals
Machinery costs, fuel and repairs
Part-time labor and other costs
Total production cost per bushel
B. Annual costs not related to volume of production Salaries and wages
Insurance...

Similar Documents

Premium Essay

Grennell Farm

...CASE STUDY: Grennell Farm (President and Fellows of Harvard College) BACKGROUND | Grennell Farm is a corporation that is engaged in the production of wheat. Located in Iowa, the 2,000-acre farm was established by Jeremiah Grennell more than 20 years ago. The sudden demise of its founder has led the farm to be transferred to the leadership of, Mr. Grennell’s niece and chosen heir, Denise Grey. She was informed of her inheritance early in 2010. Ms. Grey works as an AVP in the consumer credit of a large New York bank. With the huge distance between Iowa and New York, she is carefully studying the advantages and disadvantages of retaining the farm’s ownership. | POINT OF VIEW |  Third Person (Consultancy) | STATEMENT OF THE PROBLEM | Should Denise Grey sell the farmland at its current valuation or retain the farm as its investment? | AREAS OF CONSIDERATION | 1. Favourable increase in present Farm Commodity Prices 2. Profitability of the Farm 3. Appreciation of Farmland 4. Distance 5. High Liquidity that is available for credit | ALTERNATIVE COURSES OF ACTION | 1. Retain the farm land as investment | | ADVANTAGES | DISADVANTAGES | | 1. Favorable Price Fluctuation 2. Profitable farm 3. High Appreciation of Farmland | 1. Huge Distance from farmland to workplace2. Low extra liquid be available for credit | | 2. Sell the Farmland | | ADVANTAGES | DISADVATAGES | | 1. Eradication of problem with distance 2.......

Words: 489 - Pages: 2

Premium Essay

Test

...ACC 509 Case 5-2 Respons Grennell Farm Income Statement (Sales/Delivery Method) ------------------------------------------------- Year Ending December 31, 2009 Sales Revenue $522,000 Less Expenses Cost of Sales 92,340 Wages 72,500 Insurance 4,500 Taxes 32,500 Depreciation 28,500 Other 45,000 Total Expenses 275,340 ------------------------------------------------- Net Income $246,660 Grennell Farm Balance Sheet (Sales/Delivery Method) ------------------------------------------------- Year Ending December 31, 2009 Assets Liabilities Current Assets Total Liabilities 33,000 Cash 30,900 Paid-In Capital 450,000 Inventory 92,100 Common Stock 7,500 A.R. 59,600 Long-Term Assets Retained Earnings 179,600 Land 375,000 Equipment 412,500 Depreciation (300,000) ________ _______ ------------------------------------------------- Total Assets 670,100 Total Liabilities & O.E. 670,100 In the sales method, the revenue is recognized when the grain is purchased and received by the grain elevator. Thus, the sales revenue was calculated by multiplying 180,000 bushels by an average price of $2.90/bushel. The cost of sales was calculated by multiplying these 180,000 bushels by a total production cost per bushel of $0.531. In the balance sheet, inventory is made up of 30,000 bushels stored at the farm at a current price of $3.07. The accounts receivable......

Words: 721 - Pages: 3

Premium Essay

Chapter 5 Revenue and Monetary Assets

...involved in estimating bad debts, writing off specific accounts, and booking bad debts recovered, is complicated and not easy to follow. If experience is any guide, it is quite likely that at the time this chapter is taught the press will be describing a company that has gotten into trouble for overstating its revenue or understating its bad debt or warranty allowance. Discussion of such a situation would be interesting. Cases Stern Corporation (A) is a straightforward problem in handling accounts receivable and bad debts. MacDonald’s Farm, by contrast, has few technical calculations but provides an excellent opportunity for a realistic discussion of alternative ways of measuring revenue and of valuing assets. Joan Holtz (A) is a different type of case. It is a device for raising several discrete, separable problems about the subject matter of the chapter, from which the instructor can pick and choose those he or she wishes to take up in class. (It probably is not feasible to discuss all of them.) Bausch & Lomb, Inc., is an actual case situation involving revenue recognition. Boston Automation Systems, Inc. involves a review of the company’s revenue recognition practices in the light...

Words: 14148 - Pages: 57

Premium Essay

Grennel Farm

...involved in estimating bad debts, writing off specific accounts, and booking bad debts recovered, is complicated and not easy to follow. If experience is any guide, it is quite likely that at the time this chapter is taught the press will be describing a company that has gotten into trouble for overstating its revenue or understating its bad debt or warranty allowance. Discussion of such a situation would be interesting. Cases Stern Corporation (A) is a straightforward problem in handling accounts receivable and bad debts. MacDonald’s Farm, by contrast, has few technical calculations but provides an excellent opportunity for a realistic discussion of alternative ways of measuring revenue and of valuing assets. Joan Holtz (A) is a different type of case. It is a device for raising several discrete, separable problems about the subject matter of the chapter, from which the instructor can pick and choose those he or she wishes to take up in class. (It probably is not feasible to discuss all of them.) Bausch & Lomb, Inc., is an actual case situation involving revenue recognition. Boston Automation Systems, Inc. involves a review of the company’s revenue recognition practices in the light...

Words: 14148 - Pages: 57