Agriculture Reference
In-Depth Information
At the end of the fi rst year Julie's expenses were as follows: gas, oil, repairs, and tires
$7,900 and telephone $600. During her fi rst year she purchased 1,000 kits at $35.00/kit that
were in addition to the $19,250 spent on kits to start the business. The freight on the kits was
$2,000. At the end of the fi rst year of the business she had $19,250 in inventory.
Her gross revenue from the business was $87,000. Kits sold that had been returned for a
refund had been sold for $200. She had been making $45,500 per year when working at her
previous job, and she calculated that she should make at least that much to justify the time
spent in the business. Her sister spent about one day per week doing the offi ce work, and
Julie felt that she should be reimbursed at a rate of $50 per day for her efforts. Her sister
worked 50 weeks and went on vacation for two weeks.
Questions
1.
Prepare a balance sheet as of the fi rst day of business for Julie. The balance sheet is to
be prepared after she purchased the assets needed to start the business and borrowed the
money from her father and the bank. The date for the balance sheet is 12/31/2010. How
much did she have to borrow from the bank?
2.
Prepare an income statement for Julie's fi rst year of business, 1/1/2011-12/31/2011.
Make the following assumptions:
•
Depreciate all fi xed assets over fi ve years and assume a salvage value of $0.
•
Julie makes her payment to the bank. She also pays her father interest only on the
loan from him. She makes both payments on 12/30/2011.
•
Assume Julie does not pay Social Security tax on her sister's salary and that she
does not have to pay any state and Federal income taxes.
3.
Prepare a balance sheet as of the end of the fi rst year for Julie's business. Use the infor-
mation provided on Julie Rowe's beginning balance sheet and income statement to
complete an ending balance sheet for Julie Rowe. The ending balance sheet date is as of
12/31/2011. Note: You will need to calculate Julie's cash balance on 12/31/2011,
because it is not $ 1,000. Make the following assumptions:
•
The ending inventory for Julie's supplies is the same amount as her beginning
inventory, $ 4,750.
•
The ending inventory is the same amount as her beginning inventory, $19,250.00
•
Julie lives with her parents, which reduces her living expenses. She decided to
withdraw $25,000 for family living expenses.
4.
Prepare a statement of owner's equity for Julie's business for her fi rst year.
5.
Julie's principal payment on her long-term debt and her withdrawal for family living
expenses exceeded her net income after taxes, but she did make the principal payment
on the loan. How did she make the payment? Discuss Julie's situation as she assesses
her ability to make her payments in 2012.
Additional references and reading
Barnard , Freddie L. , Paul N. Ellinger , and Christine Wilson . “Measurement Issues in Assessing Farm
Profi tability through Cash Tax Returns.”
Journal of the American Society of Farm Managers and
Rural Appraisers
( 2010 ): pp. 207 - 17 .
Financial Guidelines for Agricultural Producers. “Farm Financial Standards Council.” 2010.
www.
ffsc.org .
