AREC 305 AGRICULTURAL BUSINESS AND RESOURCE ENTERPRISE ANALYSIS Fall 2023 Assignment #6 (50 points) DUE: 11:59pm MDT, Monday, October 16 Date: January 1, 2021 Platte Valley Paul is the owner of a diversified farm business located in northeastern Colorado. He got his start in the family operation about ten years ago. By using equipment from the family operation, doing a lot of custom hauling, and renting adjacent farmland, Paul was able to convert several good years into enough cash to purchase some land of his own. After several years of also working part-time for others, Paul is now working fulltime on his own operation. Paul's primary interests have always been focused on crop management with only a passing interest in the financial aspects of the operation. As his own operation grows and he gains greater independence from the family operation, he is finding that his record keeping leaves something to be desired. Recognizing that good records will be necessary to better manage his operation, Paul has hired you to help him implement a complete record keeping system. After combing through Paul's existing records and discussing them with him, you have acquired the information that follows. Relevant information regarding capital assets that Paul owns at this time (1/1/21): a. On September 1, 2014, Paul purchased a used Kenworth W900L semi-truck with both flatbed and grain trailers for $76,000 that has now been completely paid off. It is being depreciated using an 8-year time-and-a-half declining balance method with a $18,000 salvage value. b. On April 1, 2016, Paul bought a used Case IH Maxxum 140 tractor with loader for $93,920 with $18,900 cash and a 7-year amortized equal payment loan from Low Valley Bank at 4.90% interest for the remaining $75,020. Annual principal and interest payments ($12,918) continue to be due April 1 each year. The tractor is being depreciated using a double declining balance method over 10 years with a salvage value of $16,000. c. On August 1, 2019, Paul purchased an eighty-acre tract of land from a neighbor for a total of $439,000. Included with the land was a machine shed with a finished workshop that was considered to be worth $89,000 of the overall purchase price paid. The entire purchase was made with a cash down payment of $120,000 and the balance ($319,000) was financed under a 25-year mortgage from Federal Land Bank with an effective interest rate of 3.93 percent annually. The loan was amortized so that annual principal and interest payments of $20,269 are due on August 1 each year. Paul depreciates the machine shed on a 16-year straight line method with an anticipated salvage value of $25,000. d. Paul has made timely payments on all outstanding loans as they have come due, so all balances are consistent with the original loan payment schedules. Relevant information regarding Paul's inventories and accounts payable as of Jan 1, 2021: a. Cash, checking and savings balances total $5,897. b. Paul paid $6,275 to Valley Supply in 2020 for supplies not yet delivered. c. Paul estimates his tractor has market value of $48,000 and his truck $35,000. d. Recent sales in the area indicate that Pauls land is now worth $395,000 plus $90,000 for the machine shed. e. Paul has 9,300 bushels of corn in storage valued at $3.65 per bushel and 163 ton of alfalfa hay valued at $185 per ton. f. Farm input supplies on hand are valued at $3,560. g. Paul has an outstanding operating loan for $42,000 that he obtained on March 1 of the previous year (2020) from Last National Bank. Interest is charged at 5.9% per annum and the entire balance (principal and interest) is due March 1 (2021). h. In December 2020 Paul delivered 65 ton of alfalfa hay to Wishmore Feedlot under a contract at $150/ton but has yet to be paid. i. Real estate taxes of $3,690 have accrued for 2020 (they will be payable in two installments in 2021). j. On March 1, income and social security taxes for 2020 of $28,300 will be due (note that these are personal obligations NOT obligations of the businessthink about what this means for Pauls business balance sheet). This provides all of the information that you need to establish Paul's initial financial position as of January 1, 2021. At this point it is your responsibility to: 1. Set up the various supplementary schedules required and make them current as of January 1, 2021. This includes depreciation schedules, loan schedules, and inventory accounts. In setting up your depreciation schedules, be sure to prorate the first year of depreciation according to the actual time the asset was in service. 2. Construct a balance sheet for Paul's business including both the cost and market basis of valuing of assets (see suggested format on the last page of this assignment). NOTE: You should complete ALL of the tasks inferred in these two steps BEFORE you proceed to the next two pages of the assignment. Any information that you need from these first two pages should be become available in the schedules and statements that you have created here. It is STRONGLY RECOMMENDED that you set up your Excel workbook such that any time that you need to use a value that you have already reflected in another statement/schedule that you have created on another worksheet, simply reference the cell that contains the value with an equation. Date: December 31, 2021 The following transactions occurred during the year 2021: 1/5 Received check for $9,750 from Wishmore Feedlot for hay delivered last year. 1/13 Took delivery of prepaid supplies from Valley Supply. 1/23 Received $3.72 per bushel for 5,000 bushels of corn sold to Independent Grain. 1/29 Paid $75 each for 156 sixty-pound feeder pigs that will be fed out this year. 2/2 Received $190 per ton for 120 ton of alfalfa hay sold to D-Lite Dairy. 2/5 Seeing an opportunity to save a bit of interest, Paul pays outstanding principal on last years operating loan plus $2,172 interest to LNB. 3/1 Obtained a new one-year loan from Last National Bank (LNB) for $60,000 to cover operating expenses during the upcoming year. Interest charged at 5.65% per annum. 3/1 Paid 2020 income and social security taxes due (remember, not business expenses). 3/17 Paid $2,256 for swine feed supplement that was delivered in late January that has been and will be fed entirely to current crop of feeder pigs. 3/26 Early spring blizzard hits and causes Paul extreme difficulty in managing his pigs. Many pigs contract pneumonia with 44 dying. Big Valley Vet Clinic is brought in to help stem the losses. Medication and services billed at $2,150 (not yet paid). 4/1 Tractor loan payment due is paid. 4/13 Received $3.60 per bushel for 2,000 bushels of corn sold to Independent Grain. 4/15 Paid first half of 2020 real estate taxes. 4/29 Paid bill due at Big Valley Vet for services in March. 5/5 Paul withdrew $5,000 from the business for his personal use. 5/10 Received $160 per ton for 38 ton of alfalfa hay sold to Wishmore Feedlot. 5/24 Sold 108 pigs at 240 pounds each for $156/head. Paul notes that he fed 1,600 bushels of his own corn to the pigs this spring. 5/31 Paid $7,520 to Hart Throb for planting corn crop in May. 6/3 First cutting of 345 ton of alfalfa hay is harvested and stacked in stackyard. 6/15 Paid O & M fees of $13,580 to High'N'Dry Irrigation District. 7/1 Pauls semi-truck has a major breakdown with the transmission and results in his rig becoming completely useless at his peak need. In desperate need of a new truck and trailer setup, Paul purchased a used Peterbilt truck with both flatbed and grain trailers $89,000 from I.M. Hauling, Inc. Paid $12,000 cash with balance financed by the dealer. The loan accrues interest at the rate of 3.25% annually with equal payments of $14,332 due to be paid on July 1 each of the next 6 years. Paul will use time-&-ahalf declining balance depreciation over 9 years with $30,000 S.V. 7/5 Second cutting of 259 ton of alfalfa hay is harvested and stacked in stackyard. 7/20 With the old semi-truck & trailers being in pretty rough shape, Paul is able to finally find a buyer via BigIron.com and is able to sell it for $24,500 cash net of selling expenses. 8/1 Mortgage payment due is paid. 8/8 Paid $9,600 to Buzzem Aerial Applicators for pesticide application. 8/10 Received $36,300 for third cutting of 220 ton of alfalfa hay that is sold directly out of the field to D-Lite Dairy for $165/ton. 8/14 Paul withdrew $8,000 from the business for his personal use. 8/25 Paid $17,280 to Frank's Farm Supply for seed and chemicals used this season. 9/15 Received $150/ton for 155 ton of alfalfa hay sold out of inventory. 9/26 Paul withdrew $12,000 from the business for his personal use. 9/28 Paid $14,540 to Grange Supply for summer fuel and fertilizer deliveries. 10/15 Last half of 2020 real estate taxes are paid. 11/3 Finished harvesting corn crop totaling 32,520 bushels now in storage. 11/5 Received $3.45 per bushel for 16,000 bushels of corn sold to Independent Grain. 11/12 Paid Harry Husker $16,500 for harvesting corn crop. 12/5 Paul withdrew $22,000 from the business for his personal use. 12/15 To even out his tax liability Paul paid for $13,200 of fertilizer & other crop chemicals but will not take delivery until March and will be all applied next year. 12/26 Delivered 14,000 bushels of corn to Wishmore Feedlot for which Paul will receive $3.55 per bushel on January 10. Relevant information regarding Paul's inventories and accounts payable as of Dec 31, 2021: a. Paul owes $16,932 to the Grange Supply for fuel & supplies delivered in 2021. b. Real estate taxes for 2021 (to be paid in 2022) amount to $3,960. c. Income and social security taxes for 2021 (due in 2022) are $27,900. (not business) d. Corn on hand is estimated to be worth $3.50/bushel and alfalfa hay worth $175/ton. e. The tractor and truck market values are estimated at $45,000 and $85,000. f. The market value of land is estimated at $405,000 plus $95,000 for outbuildings. g. Farm supplies on hand are valued at $4,583. h. Be sure to properly account for those late-December transactions noted previously. The preceding two-and-a-half pages contain all relevant information for Paul's operation from January 1, 2021 through December 31, 2021. It is now your responsibility to do the following: 1. Develop a single-entry cash transactions journal for the activities of the year. 2. Update his schedules for outstanding loans, farm product inventories, and depreciation as of December 31, 2021. 3. Create an end-of-year balance sheet using both the cost and market value approaches. 4. Construct income statements for 2021 using both the cash and accrual methods. 5. Reconcile the change in cost basis net worth with the income statement. 6. Analyze Paul's financial position and write a short (1-2 page) report on his condition including any observations you have regarding financial standing or performance. In this report, be sure to utilize your statements to compute relevant measures of each of our three primary financial concepts and discuss what each of those computed measures indicates for Pauls business. Finally, write a short analysis of the evident distortions that a cashbasis analysis would have manifested as compared to your accrual-basis analysis and how your approach remedied these distortions. Given the lack of information regarding Pauls opportunity cost of unpaid labor and management, it would be most reasonable to use his total personal withdrawals (Nonfarm Expenses in the Cash Transactions Journal) from the business as a proxy for this value. This will be an important key in your financial analysis above. Be sure to submit BOTH your formatted PDF output (as a SINGLE PDF file) with the Honor Pledge displayed prominently on the first page and the supporting Excel file that you used to generate your analysis via Canvas as has been and will continue to be the expectation for all assignments all semester. Recommended Formats for Schedules and Statements Loan Schedule Interest Amount Rate Financed Term Payment xx% $xxxx xx $xxxx Principal Interest Principal Date Payment Payment Balance xx/xx/xx $xxxx xx/xx/xx $xxxx $xxxx $xxxx xx/xx/xx $xxxx $xxxx $xxxx Depreciation Schedule Asset xxxxxxx Purchase Price $xxxx Purch Date xx/xx/xx Salvage Value $xxxx Depr Meth xxxxxxxxxx Beg. Depr Base $xxxx Depr Depr Book Value Gain or Date Base Claimed Value of Sale Loss Comment xx/xx/xx $xxxx Purchase xx/xx/xx $xxxx $xxxx $xxxx xx/xx/xx $xxxx $xxxx $xxxx Inventory Schedule Product Name: xxxx Units for inventory: xxxx Product Product Inventory Date Description In Out Balance xx/xx/xx Beginning balance xxxxx xx/xx/xx xxxxxxxxxxxxxx xxxxx xxxxx xxxxx xx/xx/xx xxxxxxxxxxxxxx xxxxx xxxxx xxxxx Platte Valley Paul Cash Transactions Journal for the year ending December 31, 20xx Operating Capital Money Nonfarm Operating Interest Principal Capital Nonfarm Cash Date Explanation Receipts Sales Borrowed Income Expenses Payments Payments Purchases Expenses Balance xx/xx xxxxxxx $xxxx Totals $xxxx $xxxx $xxxx $xxxx $xxxx $xxxx $xxxx $xxxx $xxxx $xxxx Platte Valley Paul Balance Sheet December 31, 20xx Cost Market Cost Market Current Assets Current Liabilities Cash Accts Reci. $xx,xxx $xx,xxx $xx,xxx $xx,xxx Accounts Payable Accrued Interest $xx,xxx $xx,xxx $xx,xxx $xx,xxx