...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. High...
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...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 balance...
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...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...
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...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
