4. Assume LM. Farmer has an accoun unting period Use the following information o

Question

4. Assume LM. Farmer has an accoun unting period Use the following information obtained for the cahine from January 1 to December 31. calendar year 2014 LM. Farmer Income Statement December 31, 2014 sales Cash crop Cash livestock sales Inventory changes: Crops Market lvestock Lilvestock product sales Government program payments Gain/loss from sale of culled breeding stock Change in accounts receivable Other farm income Total revenue 12.900 307.940 Purchased feed and grain Purchased market livestock Other cash operating expenses: 21,200 46,500 Fertilizer expense 9,400 780 Chemical expense Seed purchased Vet. & health expenses 4,800 Fuel, oil 22,600 12,100 3,400 3,800 4,800 5,800 Labor Repairs, maintenance Property taxes Insurance Supplies Misc. expenses Adjustments Depreciation Cash interest paid 1,400 28,900 Accounts payable 186,690 Total operating expenses 33,400 2,400 Change in interest payable Total interest expense Total expenses 31,000 217,690 90,2 Net farm income from operations Gain/loss on sale of capital assets 11,100 Machinery Land 11,100 101,350 Total Net farm income

Explanation / Answer

1 Is Every Expenditure of Cash an Expense? Yes or No? Cash paid to purchase depreciable assets on the day of purchase Yes Depreciation Expense No Expenses incured to produce agricultural commodities Yes Cash expenditures on personal items No Principal paid on loans No Expenses incurred to produce services Yes Interest paid on loans Yes Depreciation is not a cash expenses, it is amortization of value of asset over its useful life Cash expenditure on personal items are personal expenses and could not be included in business expenses Principal paid on loans is a reduction of liability such as loan payable, notes payable in balance sheet. Interest paid on loan is a expenses and will effect income statement 2 When adjusting net farm income from cash basis to an accrual basis, would you add or subtract the following operations to the cash basis income statement Add or subtract to revenues? Ending Accounts receivable (-) Beginning accounts receivables Add. Cash basis only take that income which is received in cash, we will add income earned but not yet received in cash to take it on accrual basis Ending Inventories (-) Beginning Inventories Add or subtract to expenses? Ending Prepaid expenses (-) Beginning Prepaid expenses) Subtract. Prepaid expenses are those which does not pertain to the current period. On cash basis, these items are taken to income statement, which are part of balance sheet items. Ending Accounts payable (-) Beginning accounts payable Add. Cash basis only take that expenses which are paid in cash, we will add expenses incured but not yet paid in cash to take it on accrual basis Ending Investment in Growing Crops (-) Beginning Investment in growing crops Subtract. Investment is not an expense, thus we will subtract from expenses and add it to balance sheet items. Ending Unused Supplies (-) Beginning Unused Supplies Subtract. Unused supplies is a balance sheet item Ending accrued expenses(-) Beginning accrued expenses Add. Accrued expenses are those expenses which are incured but yet not paid in cash, so we will add these expenses

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