Sure, here is the solution to the Grennell Farm case:
**1. Income statement and balance sheet for the Grennell Farm recognizing revenue by the sales (delivery method)**
```
Income Statement
Sales (delivery method)
* Wheat sold to elevator operator 180,000 bushels * $2.90/bushel = $522,000
* Wheat in ending inventory 30,000 bushels * $2.80/bushel = $84,000
Total sales 606,000
Cost of goods sold
* Production costs 210,000 bushels * $0.513/bushel = $107,730
* Ending inventory 30,000 bushels * $0.513/bushel = $15,390
Total cost of goods sold 123,120
Gross profit 482,880
Operating expenses
* Salaries and wages 72,500
* Insurance 4,500
* Taxes 32,500
* Depreciation 28,500
* Other expenses 45,000
Total operating expenses 183,000
Net income 299,880
Balance Sheet
Assets
* Cash 23,200
* Accounts receivable 20,000
* Inventory 84,000
* Land 375,000
* Buildings and machinery 112,500
Total assets 694,700
Liabilities and equity
* Current liabilities 33,000
* Owner's equity
* Common stock 7,500
* Paid-in capital 450,000
* Retained earnings 299,880
Total liabilities and equity 694,700
```
**2. Accounting for the economic gain represented by the appreciation in land values**
The economic gain represented by the appreciation in land values should be recorded as a deferred gain in the balance sheet. This gain should not be recognized as income until the land is sold.
The following journal entry would be made to record the deferred gain:
```
Dr. Land 225,000
Cr. Deferred Gain on Land Appreciation 225,000
```
When the land is sold, the deferred gain would be recognized as income. The following journal entry would be made to record the sale of the land:
```
Dr. Cash 225,000
Dr. Deferred Gain on Land Appreciation 225,000
Cr. Land 450,000
```
**3. Should Ms. Grey retain ownership of the farm?**
Ms. Grey should carefully consider the following factors before deciding whether to retain ownership of the farm:
* The profitability of the farm in the future.
* The appreciation potential of the land.
* Ms. Grey's personal interest in farming.
* Ms. Grey's ability to manage the farm.
If Ms. Grey believes that the farm can be profitable in the future and that the land has significant appreciation potential, then she may want to retain ownership of the farm. However, if Ms. Grey is not interested in farming or does not have the ability to manage the farm, then she may want to sell the farm.
Ultimately, the decision of whether to retain ownership of the farm is a personal one that Ms. Grey should make after careful consideration of all of the relevant factors.
Draft 2
Sure, here is the solution to the Grennell Farm case:
1. Income Statement and Balance Sheet for the Grennell Farm
a. Sales (Delivery Method)
Income Statement
Revenue$522,000
Cost of Goods Sold$92,340
Gross Profit$429,660
Operating Expenses$183,000
Net Income$246,660
Balance Sheet
AssetsLiabilities and Equity
Cash$23,200
Accounts Receivable$59,600
Inventory$15,390
Land$375,000
Buildings and Machinery$112,500
Total Assets$671,490
Notes Payable and Accounts Payable$33,000
Owner's Equity$638,490
b. Collection Method
Income Statement
| Revenue | $462,400 |
| Cost of Goods Sold | $82,080 |
| Gross Profit | $380,320 |
| Operating Expenses | $183,000 |
| Net Income | $197,320 |
Balance Sheet
AssetsLiabilities and Equity
Cash$23,200
Land$375,000
Buildings and Machinery$112,500
Total Assets$500,700
Notes Payable and Accounts Payable$33,000
Owner's Equity$467,700
c. Production Method
Income Statement
| Revenue | $614,100 |
| Cost of Goods Sold | $107,730 |
| Gross Profit | $506,370 |
| Operating Expenses | $183,000 |
| Net Income | $323,370 |
Balance Sheet
AssetsLiabilities and Equity
Land$375,000
Buildings and Machinery$112,500
Total Assets$487,500
Notes Payable and Accounts Payable$33,000
Owner's Equity$454,500
2. Accounting for the Appreciation in Land Values
If the Grennell Farm had received a firm offer of $225,000 for 100 acres of the farm, the appreciation in land values would be accounted for as a gain on the sale of land. The gain would be recorded on the income statement in the year the land is sold. The gain would be calculated as the difference between the fair market value of the land and the book value of the land. The fair market value of the land is the amount that the land could be sold for on the open market. The book value of the land is the original cost of the land, plus accumulated depreciation.
The gain on the sale of land would increase net income and, therefore, increase owner's equity. The gain would also increase cash, if the land was sold for cash.
3. Decision to Retain Ownership of the Farm
The decision of whether or not to retain ownership of the farm is a complex one that depends on a number of factors, including:
The profitability of the farm.
The future prospects for the farm.
The personal preferences of Ms. Grey.
Based on the information provided in the case, the farm appears to be profitable. The sales and production costs are relatively stable, and the farm has a good reputation in the community. The future prospects for the farm are also positive, as the demand for wheat is expected to remain high in the coming years.
However, there are also some factors that Ms. Grey should consider before making a decision. The farm is located in a rural area, which may make it difficult to attract and retain qualified employees. The farm is also subject to the risks of weather and pests.
Ultimately, the decision of whether or not to retain ownership of the farm is a personal one that Ms. Grey
Draft 3
Sure, here is the solution to the Grennell Farm case:
**1. Income statement and balance sheet for the Grennell Farm recognizing revenue by the**
a. **Sales (delivery method)**
```
Income Statement
Sales (210,000 bushels * $2.90/bushel) $609,000
Cost of Goods Sold (210,000 bushels * $0.513/bushel) 107,730
Gross Profit $501,270
Operating Expenses:
Salaries and wages $72,500
Insurance $4,500
Taxes $32,500
Depreciation $28,500
Other expenses $45,000
181,000
Net Income $320,270
Balance Sheet
Assets:
Cash $30,900
Accounts receivable $20,000
Inventory $15,390
Land $375,000
Buildings and machinery $112,500
Total assets $543,790
Liabilities and Equity:
Current liabilities $33,000
Owner's equity:
Common stock $7,500
Paid-in capital $450,000
Retained earnings $320,270
Total liabilities and equity $543,790
```
b. **Collection method**
```
Income Statement
Sales (180,000 bushels * $2.90/bushel) $522,000
Cost of Goods Sold (180,000 bushels * $0.513/bushel) 92,340
Gross Profit $429,660
Operating Expenses:
Salaries and wages $72,500
Insurance $4,500
Taxes $32,500
Depreciation $28,500
Other expenses $45,000
181,000
Net Income $248,660
Balance Sheet
Assets:
Cash $30,900
Accounts receivable $0
Inventory $0
Land $375,000
Buildings and machinery $112,500
Total assets $518,400
Liabilities and Equity:
Current liabilities $33,000
Owner's equity:
Common stock $7,500
Paid-in capital $450,000
Retained earnings $248,660
Total liabilities and equity $518,400
```
c. **Production method**
```
Income Statement
Sales (210,000 bushels * $2.90/bushel) $609,000
Cost of Goods Sold (210,000 bushels * $0.513/bushel) 107,730
Gross Profit $501,270
Operating Expenses:
Salaries and wages $72,500
Insurance $4,500
Taxes $32,500
Depreciation $28,500
Other expenses $45,000
181,000
Net Income $320,270
Balance Sheet
Assets:
Cash $30,900
Inventory $0
Land $375,000
Buildings and machinery $112,500
Total assets $528,400
Liabilities and Equity:
Current liabilities $33,000
Owner's equity:
Common stock $7,500
Paid-in capital $450,000
Retained earnings $320,270
Total liabilities and equity $528,400
```
**2. Accounting for the economic gain represented by the appreciation in land values**
The appreciation in land values can be accounted for in the 2009 financial statements as a gain on the sale of land. The gain would be calculated as the difference between the fair value of the land on December 31, 2009, and its carrying value on that date. The fair value of the land would be based