Date: January 1, 2018

Platte Valley Paul is the owner of an irrigated cash grain farm located in eastern Colorado. He got

his start in the family operation about fifteen years ago. By using equipment from the family

operation and renting adjacent farm land, Paul was able to convert several good crops into enough

cash to purchase some irrigated land of his own after several years of operating his own farm and

working part-time for others. 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 (1/1/18):

a. On February 1, 2013, Paul bought a used JD 7800 tractor for $65,500 with $17,000

cash and an 8-year amortized equal payment loan from Low Valley Bank at 5.25%

interest for the remaining $48,500. Annual principal and interest payments ($7,580)

are due February 1 each year. The tractor is being depreciated using a time-and-ahalf

declining balance method over 12 years with a salvage value of $19,000.

b. On November 1, 2014, Paul purchased a half section (320 acres) of irrigated crop

land from a neighbor for a total of $970,675. At the time of the purchase the two

center pivot irrigation systems on the property were considered to be jointly worth

$80,000 of the overall purchase price paid. The entire purchase was made with a

$200,000 cash down payment and the balance ($770,675) was financed under a 25-

year mortgage from Federal Land Bank with an effective interest rate of 4.65 percent

annually. The loan was amortized so that annual principal and interest payments of

$52,779 are due on November 1 each year. Paul depreciates the irrigation systems

on an 18-year straight line method with a combined total salvage value of $17,000.

c. On April 1, 2016, Paul purchased a new 8 row planter for $63,000 cash. It is being

depreciated using an 9-year double declining balance method with a $14,000 salvage

value.

d. Paul has made 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, 2018:

a. Cash, checking and savings balances total $21,431.

b. Paul owes $12,275 to the Grange Supply for fuel delivered in 2017.

c. Paul estimates his tractor has market value of $35,000 and his planter $45,000.

d. Recent sales in the area indicate that the half section of land is worth $1,170,000 plus

$60,000 for the center pivots.

e. 40,000 bushel of corn in storage is valued at $3.65 per bushel.

f. Fuel and supplies on hand are valued at $21,500.

g. Paul has an outstanding operating loan for $57,000 that he obtained on April 1 of the

previous year (2017) from Last National Bank. Interest is charged at 6.7% per

annum and the entire balance (principal and interest) is due July 1 (2018).

h. To even out his tax liability Paul paid for $18,500 of fertilizer in December 2017 but

will not take delivery until March and will be used entirely in 2018.

i. Real estate taxes of $6,750 have accrued for 2017 (they will be payable in two

installments in 2018).

j. On March 1, income and social security taxes for 2017 of $27,800 will be due (these

are personal obligations NOT obligations of the business).

This provides all of the information that you need to establish Paul's initial financial position. At

this point it is your responsibility to:

1. Set up the various supplementary schedules required and make them current as of January 1,

2018. 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 operation 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 remaining two pages of the assignment. Any information that you need from these first two

pages should be now 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, 2018

The following transactions occurred during the year 2018:

2/1 Principal and interest payment due on tractor loan is paid.

2/21 Paid bill outstanding at Grange Supply.

2/26 Received $3.55 per bushel for 13,000 bushels of corn sold to Independent Grain.

3/1 Paid income and social security taxes due (remember, not business expenses).

3/5 Received $3.70 per bushel for 10,000 bushels of corn sold to Wishmore Feedlot.

4/15 Paid first half of 2017 real estate taxes.

4/22 Received $3.75 per bushel for 14,000 bushels of corn sold to Independent Grain.

5/3 Paid outstanding balance on operating loan plus $4,478 interest to Last National.

5/24 Received $12,250 from Hart Throb for planting his corn crop in May.

6/1 Paul obtained a one-year loan from Last National Bank for $42,000 to cover

operating expenses during the upcoming year. Interest will be charged at 6.3%.

6/2 Paid O & M fees of $29,850 to High'N'Dry Irrigation District.

6/15 Severe lightning storm burned out several motors on pivots. Big Valley Service

completed repairs amounting to $5,730 charged to Paul's account.

7/25 Paid $10,600 to Buzzem Aerial Applicators for pesticide application.

7/30 Paid bill due at Big Valley Service for pivot repairs in June.

8/17 Received $3.65 per bushel for 3,000 bushels of corn sold to Independent Grain.

8/20 Paid $21,280 to Frank's Farm Supply for seed and chemicals used this season.

9/15 Paid $19,450 to Grange Supply for summer fuel and fertilizer deliveries.

9/25 Received $3.40 per bushel for 10,000 bushels of corn pre-sold to Independent Grain.

10/1 Purchased a new planter for $68,000. Paid $5,000 cash with balance due in 45 days.

Use double declining balance depreciation over 8 years, $22,000 S.V.

10/15 Last half of 2017 real estate taxes are paid.

10/26 Finished harvesting corn crop totaling 78,500 bushels.

10/30 Sold 10,000 bushels of corn to Independent Grain for $3.25 per bushel.

11/1 Mortgage payment due is paid.

11/10 Sold 19,000 bushels of corn to Independent Grain for $3.20 per bushel.

11/12 Paid Harry Husker $31,600 for harvesting corn crop.

11/15 Sold old planter to neighbor for $32,750 cash.

11/20 Paid remaining $63,000 for planter.

12/5 Paul withdrew $24,000 from the business for his personal use.

12/15 Delivered 15,000 bushels of corn to Wishmore Feedlot for which he will receive

$3.30 per bushel on January 10.

Relevant information regarding Paul's inventories and accounts payable as of Dec 31, 2018:

a. Paul owes $12,530 to the Grange Supply for fuel & supplies delivered.

b. Real estate taxes for 2018 (to be paid in 2019) amount to $6,920.

c. Income and social security taxes for 2018 (due in 2019) are $24,900. (not business)

d. Corn on hand is estimated to be worth $3.35 per bushel.

e. The irrigation systems, tractor, and new planter are estimated to have market values

of $58,000, $31,000, and $68,000 respectively.

f. The 320 acres of farm land is estimated to have market value of $1,250,000.

g. Fuel and supplies on hand are valued at $7,648.

The preceding two pages of information contain all relevant information for Paul's operation from

January 1, 2018 through December 31, 2018. It is 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, 2018.

3. Create an end-of-year balance sheet using both the cost and market value approaches.

4. Construct income statements for 2018 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.

NOTE: Be sure to submit BOTH the formatted PDF output and the supporting Excel file via

Canvas as has been and will continue to be the expectation 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

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 $xx,xxx $xx,xxx $xx,xxx $xx,xxx

Accts Reci. $xx,xxx $xx,xxx

Accounts Payable

Accrued Interest $xx,xxx $xx,xxx

" " " " " " " "

" " " " " " " "

" " " " " " " "

" " " " " " " "

" " " " " " " "

" " " " " " " "

" "

" "

" "

" "

" "

" "

" "