Introduction to Farm and Ranch Management
Introduction to Farm and Ranch Management EconS 350
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This 15 page Class Notes was uploaded by Maurine Kuhic on Thursday September 17, 2015. The Class Notes belongs to EconS 350 at Washington State University taught by Staff in Fall. Since its upload, it has received 8 views. For similar materials see /class/205984/econs-350-washington-state-university in Economic Sciences at Washington State University.
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Date Created: 09/17/15
Farm Financial Statements Farm financial statements allow the manager to assess the businesss financial position and performance and chart its progress Farm financial statements are essential for obtaining credit and are used to answer three critical questions X Is the farm solvent The ability of a farm business to meet its liabilities X Is the farm profitable The ability of a farm business to generate more revenues than expenses including opportunity cost X Is the farm liquid The ability of a farm business to generate sufficient cash to meet its financial obligations as they come due The three most basic financial statements are X The balance sheet Summarizes the asset values the liabilities and the net worth position of the business at a given point in time X The income profit and loss statement Summarizes cash receipts expenses and inventory schedules over a given period of time most generally one year X The cash flow statement Provides an overview of The businesss cash flow including debT paymenTs family living expenses and income Tax over a given period of Time Preparing a Balance SheeT The balance sheeT is a snapshoT of The business aT a given poinT in Time The balance sheeT summarizes The invesTmenTs ThaT have been made in The business asseTs and how These invesTmenTs are being financed liabiliTies and neT worTh as of a given poinT in Time ASSETS LIABILITIES NET WORTH EQUITY ASSETS An asseT is anyThing of value owned by a business or person including obligaTions by oThers To The individual or The business In a balance sheeT asseTs are classified as To how easily They can be converTed To cash 0 CurrenT AsseTs are Those asseTs ThaT will be used up wiThin The nexT accounTing year or ThaT can be easily converTed To cash wiThouT affecTing The operaTion of The business 0 NonCurrenT AsseTs are Those asseTs ThaT supporT producTion have a life of more Than one year and ThaT are noT normally sold in The ordinary course of doing business LIABILITIES A liabiliTy is an obligaTion or debT owed To oTher s by The individual or The business In a balance sheeT liabiliTies are classified by due daTe o CurrenT Liabilities ar e liabiliTies ThaT musT be paid wiThin The following 12 monThs or The amounT of a liabiliTy ThaT has accrued as of The daTe of The balance sheeT ie inTer esT accr39ued on an ouTsTanding loan 0 NonCurrenT LiabiliTies ar e liabiliTies due one or more years beyond The daTe of The balance sheeT NET WORTH iEguiTy ToTal AsseTs ToTal LiabiliTies NeT Wor Th EquiTy o If The neT wor Th is posiTive The business is solvenT o If The neT wor Th is negaTive The business is Technically bankr upT BALANCE SHEET Given poinT in Time m LiabiliTies and NeT Wor Th Cur r enT AsseTs XXX Cur r enT LiabiliTies XXX NonCur r enT AsseTs m NonCur r enT LiabiliTies m ToTal LiabiliTies XXX NeT Wor Th owner39s equiTy m ToTal LiabiliTies ToTal AsseTs and NeT Wor Th X X X X X X Business Balance SheeT includes only Those asseTs and liabiliTies relaTing To The business Personal Balance SheeT includes only Those asseTs and liabiliTies relaTing To The family Conso l idaTed Balance 5 heeT includes The asseTs and liabiliTies of boTh The business and The family The balance sheeT can be prepared using eiTher The cosT or The markeTvalue approach 0 The cosT approach is based on original cosT minus depreciaTion These resulTing figures are Termed book valuesquot and may noT reflecT The True value of The various asseTs o The markeT value approach is based on fair markeT value raTher Than whaT was paid These figures are Termed AmarkeT values and reflecT The True value of The various asseTs Business Balance Sheet for Frank Pharmer December 31 Assets Cost Liabilities Cost Current Assets Current Liabilities Cash 2000 Accounts payable 1000 Savings 19000 Principal due on machine 1000 loan Livestockto be sold 26000 Principal due on real 12000 estate loan Crops and feed 68000 Accrued interest 7200 Growing crops 6000 Accrued tax liabilities 9000 Supplies 3000 Contingent taxes on sale 6000 of Current Assets Prepaid expenses 2 000 Subtotal 126000 Subtotal 37200 NonCurrent Assets NonCurrent Liabilities Machinery and 93700 Machine loan 25000 equipment Breeding stock 16000 Sales contract 10000 Continent income taxes on sale of machinery amp 0 equipment Farmland 155300 Real estate mortgage 132000 Buildings 16000 Contingent income taxes on sale of real estate 0 Subtotal 281000 Subtotal 167 000 Total liabilities 204200 Net worth 202 800 Total liabilities and net Total assets 407000 worth 407000 BALANCE SHEET A Snapshot of Your Business at a Given Point in Time ACCRUED INTEREST How Much Interest Owed as of a Given Point in Time BALANCE SHEET December 31 2006 2006 2007 2008 April 1 April 1 10000 loan 1705 Principal Payment 8 interest quota 800 Interest Payment 5 year repayment 8295 Remaining Loan Balance Annual Pamp payment 2505 Since April 1 2006 nine months of interest has accruedll Thus 800 x 912 600 of accrued interest as of December 31 2006 DoubleColumn Balance Sheet for Frank Pharmer December 31 Assets Cost Market Liabilities Cost Market Current Assets Current Liabilities Cash 2000 2000 Accounts payable 1000 1000 Savings 19000 19000 Principal due on 2000 2000 machinery loan Livestock to be sold 26000 26000 Principal due on real 12000 12000 estate loan Crops and feed 68000 68000 Accrued interest 7200 7200 Growing crops 6000 6000 Accrued tax liabilities 9000 9000 Supplies 3000 3000 Contingent taxes on sale 6000 6000 of Current Assets Prepaid expenses 2 000 2 000 Subtotal 126000 126000 Subtotal 37200 37200 NonCurrent Assets NonCurrent Liabilities Machinery and 93700 112000 Machine loah 25000 25000 equipment Breeding stock 16000 16000 Sales contract 10000 10000 Contingent income taxes on sale of machinery amp equipment 0 3800 Farmland 155300 247200 Real estate mortgage 132000 132000 Buildings 16000 30000 Contingent income taxes on sale of real estate 0 21 200 Subtotal 281 000 405 200 Subtotal 167 000 192 200 Total liabilities 204200 229400 Net worth 202 800 301 800 Total liabilities and net Total assets 407000 531200 worth 407000 531200 EXERCISE 1 Preparing a Balance Sheet Prepare a Acost balance sheet as of January 1 200X with the following information provided Total machine loan due 50000 Total real estate loan due 120000 Accounts payable 5000 Accounts receivable 6000 Grain in storage 20800 Land value 250000 Machine loan principal due in 12 months 10000 Real estate loan principal due in 12 months 10000 Cash in bank 18000 Accrued interest payable 9000 Original machinery cost 110000 Accumulated machinery depreciation and expensing option deductions 40000 Original grain bin cost 20000 Accumulated depreciation and expensing option deductions on grain bin 800 Organize the balance sheet under the following headings current assets non current assets total assets current liabilities noncurrent liabilities total liabilities net worth and total net worth and liabilities lO Exercise 1 Preparing a Balance Sheet January 1 ZOOX CURRENT ASSETS CURRENT LIABILITIES Total Current Assets Total Current Liabilities NONCURRENT ASSETS NONCURRENT LIABILITIES ll Total NonCurrent Assets TOTAL ASSETS 12 Total NonCurrent Liabilities TOTAL LIABILITIES NET WORTH TOTAL LIABILITIES NET WORTH EXERCISE 2 Preparing a Balance Sheet Jim Rich has to prepare a balance sheet for his banker as of January 1 200X He has hired you to do this for him and has provided you with the following information Accrued interest payable 4000 Cash in bank 8000 Total machine oan due 40000 Accounts receivable 3000 Machinery cost 100000 Accumulated machinery depreciation and expensing option deductions 35000 Total real estate mortgage due 150000 Feed and crop inventory 30000 RE mortgage principal due in 12 months 20000 13 Feed bill due 10000 Feeder livestock 12000 Land value 250000 Breeding livestock 30000 Machine loan principal due in 12 months 10000 Construct Jims January 1 ZOOX Acost basis balance sheet single column Be sure to organize it under the following headings current assets noncurrent assets total assets current liabilities noncurrent liabilities total liabilities net worth and total net worth and liabilities l4
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