Paul Plowright was delighted to be able to leave behind the hustle and bustle of the city
Question:
Paul Plowright was delighted to be able to leave behind the hustle and bustle of the city and move to the peace and quiet of the country. He was especially pleased to have been able to acquire the Fawney Farm for its many attractive features. Its soil and topography were ideal for growing corn, with additional land and ample water available for raising livestock as well. The farm also offered ready access to year-round local grain and livestock markets that were sufficiently active to assure day-to-day prices approximating those prevailing in major agricultural centers. Moreover, because of the farm's proximity to the market, transportation costs were negligible.
The previous owner, Fred Fawney, had used the farm exclusively for growing corn. He had planted in early spring, harvested in early fall, and sold immediately at whatever the post-harvest prices were. Plowright, however, envisioned a larger operation with more flexibility. He planned to grow more corn and add a hog feedlot, and depending on market conditions, he would decide each year on one of three strategies to follow: (1) sell all the corn at market, (2) sell some of the corn and use the restffor hog feed, or (3) use all of the corn for hog feed, perhaps purchasing additional feed as needed. Adopting either the second or third strategy would maintain flexibility, since Plowright could readily sell some or all of the hogs, buy more hogs, sell the corn held for feed, or buy more corn for feed.
In the spring, Plowright decided to wait to buy his first hogs until after his first corn crop was harvested so that he would have the option of being able to use it for feed. He spent $23,000 to buy seed, fertilizer, and the like to grow a crop of 10,000 bushels of corn. Planting was completed in early May, and the whole crop was harvested at the end of September. The prevailing market price for corn was $3.80 on June 30 and $4.00 on September 30, when he sold half the crop.
Required
a. What profit for the year should Plowright recognize if his year-end is September 30? Does the farming business have features that differentiate it from other types of business for accounting purposes that might affect the answer?
b. If Plowright's year-end is June 30 rather than September 30, should he recognize any profit on the corn? If he were to do so, how might he go about measuring it?
Managerial Communication Strategies and Applications
ISBN: 978-1483358550
6th edition
Authors: Geraldine E. Hynes