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Grennell Farm Case

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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

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