Ask Financial Accounting Expert

Fishy Farm is a small business located in the mountains of southwestern Virginia.  The business is actually a commercial fish hatchery dedicated to raising the finest freshwater sport fish in the area including trout, bass and perch.  The area has an abundance of fresh water clear mountain streams, which provide the natural resource for fish breading and raising. 

JB Nathan is the founder and owner of Fishy Farm.  An avid fisherman himself, JB has always had an interest in this type of business.  He was able to purchase land and convert it into a fish hatchery by building breeding and holding fish tanks near several mountain streams which flowed through his property.  Formally, JB worked for a state fish hatchery about 50 miles to the north in Possum Creek, and used this hands on experience to start his own business.

JB hired an independent accountant to keep his records for the last few years, but felt, just like raising fish, he could learn how to do the bookkeeping activities on his own.  Before taking on this additional duty, he wanted to practice recording several accounting activities related to the company and determine if he could develop the appropriate financial statements.  He decided to begin with the balance sheet that was prepared for him as of the close of business on December 31, 20x0.  He was going to review all of the activities which took place during the month of January 20x1 and see if he could develop a correct income statement for the month and a new balance sheet as of January 31, 20x1.  This was probably a good month to experiment with the accounting process, because business was slow during the colder winter months.  He wanted to be sure he was comfortable with the accounting process before things began to get real busy with fish breeding in the spring.

During January he purchased a new water filtration system which will clean and aerate the water in the holding tanks and make it suitable for recycling.  The fresher water should promote better conditions for faster fish growth and allow JB to sell larger fish more quickly.  The equipment cost $16,000 and he paid 10% down and signed an 8% 5-year note for the balance due.  He was also able to sell a used pump to a neighbor for its book value of $350. 

JB works alone on Fishy Farm although sometimes work gets busy in the spring and summer months.  When necessary he gets his wife or neighbors to help him with moving equipment or stocking fish tanks.  He pays himself a salary out of the business and feels he earns enough to make a comfortable living.  He will never go hungry; it is not many businesses where the owner can eat the inventory.  JB has a skillet and filet knife right next to his office desk.

The following exhibit is the balance sheet for Fishy Farm.

Fishy Farm

Balance Sheet

December 31, 20x0

Item

 

Total

Assets

 

 

Current Assets

 

 

Cash

$ 10,500

 

Accounts Receivable

2,200

 

Supplies

4,000

 

Inventory

24,600

 

Prepaid Expenses

1,800

 

Total Current Assets

 

$ 43,100

Long Term Assets

 

 

Land

$  52,000

 

Vehicle (net)

 8,400

 

Building (net)

140,000

 

Fish Tanks (net)

75,000

 

Equipment (net)

43,500

 

Total Long Term Assets

 

$318,900

Total Assets

 

$362,000

Liabilities and Equity

 

 

Current Liabilities

 

 

Accounts Payable

$17,200

 

Notes Payable ( 7.2% Line of Credit)

6,500

 

Unearned Revenue

1,000

 

Total Current Liabilities

 

$  24,700

Long-Term Liabilities

 

 

Notes Payable

115,000

 

Mortgage Payable

137,000

 

Total Long-Term Liabilities

 

252,000

Equity

 

 

Capital Stock

75,000

 

Retained Earnings

10,300

 

Total Equity

 

85,300

Total Liabilities and Equity

 

$362,000

Three years ago JB invested $75,000 in the business from savings he had built up over his last 10 years of work.  He has always maintained a very disciplined life style and tried to save his money so he could reach his goal of owning his own business.  He is happier being in a business he enjoys versus having a lot of money.  He also likes to work outdoors and be able to set his own schedule.  When he set up his business, since he was born and raised in the area, he was able to get good deals on the land and other assets that he purchased.  JB also has had long term relations with the bankers and they gave him favorable rates on loans in the purchase of the land, buildings and equipment.

JB kept a list of activities the business was involved in during the month of January.

JB wrote checks for the following activities:

  • Labor and salary $3,550
  • Utility bill from December $440
  • Telephone $80
  • Ralston Food Supplier (for a payment of a bill on fish food) $1,380
  • Insurance $300
  • Property Taxes $250
  • Eggs of all Kinds (for purchase of fish eggs and small fish for inventory purposes from a regional supplier) $3,300
  • Payment of $1,000 on the long-term note payable with $800 going to interest on the loan.
  • Payment of $1,500 on the mortgage with $300 toward the principle balance.

JB received cash for the following activities:

  • Sale of 20,000 fish to the state of Virginia for$14,250. The cost of those fish to JB were $6,800.
  • Payment from Frank's Fishing Pond for a sale from last year in the amount of $1,200. The cost of those fish sold were $500.
  • Payment of $700 from Premier Game Fish as an advance payment for the sale of 300 of the best bass fish in March. Those fish will cost JB $250 to raise.

Some other activities JB was aware of during the month were:

  • Depreciation on the vehicle was $100, on the building was $750, on the fish tanks was $900 and the equipment was $500.
  • $150 of prepaid advertising was used up.
  • An advanced fish sale of $600 was completed with the cost of those fish equaling $200.
  • Received January utility bill of $520
  • Sale of 6,000 fish on account to the state of West Virginia for $5,000. The cost of those fish to JB were $2,000.
  • Purchased on account from Game Fish Breeders 10,000 baby bass for $1,400.

Note: For business purposes use an income tax rate of 40%.

 Required:

1. Develop journal entries for all of the accounting transactions in January for Fishy Farm.

2. Create an income statement for the month of January for Fishy Farm.

3. Reconstruct the balance sheet for Fishy Farm as of January 31, 20x1.

4. Identify and discuss issues that JB should be concerned about regarding taking over the accounting function of the business.

5. If you were a banker, would you lend money to Fishy Farm?  Why or why not?

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M9746530
  • Price:- $45

Priced at Now at $45, Verified Solution

Have any Question?


Related Questions in Financial Accounting

Case study - the athletes storerequiredonce you have read

Case Study - The Athletes Store Required: Once you have read through the assignment complete the following tasks in order and produce the following reports Part 1 i. Enter the business information including name, address ...

Scenario assume that a manufacturing company usually pays a

Scenario: Assume that a manufacturing company usually pays a waste company (by the pound to haul away manufacturing waste. Recently, a landfill gas company offered to buy a small portion of the waste for cash, saving the ...

Lease classification considering firm guidance issues

Lease Classification, Considering Firm Guidance (Issues Memo) Facts: Tech Startup Inc. ("Lessee") is entering into a contract with Developer Inc. ("Landlord") to rent Landlord's newly constructed office building located ...

A review of the ledger of oriole company at december 31

A review of the ledger of Oriole Company at December 31, 2017, produces these data pertaining to the preparation of annual adjusting entries. 1. Prepaid Insurance $19,404. The company has separate insurance policies on i ...

Chelsea is expected to pay an annual dividend of 126 a

Chelsea is expected to pay an annual dividend of $1.26 a share next year. The market price of the stock is $24.09 and the growth 2.6 percent. What is the cost of equity?

Sweet treats common stock is currently priced at 3672 a

Sweet treats common stock is currently priced at $36.72 a share. The company just paid $2.18 per share as its annual dividend. The dividends have been increasing by 2,2 percent annually and are expected to continue doing ...

Highway express has paid annual dividends of 132 133 138

Highway Express has paid annual dividends of $1.32, $1.33, $1.38, $1.40, and $1.42 over the past five years, respectively. What is the average divided growth rate?

An investment offers 6800 per year with the first payment

An investment offers $6,800 per year, with the first payment occurring one year from now. The required return is 7 percent. a. What would the value be today if the payments occurred for 20 years?  b. What would the value ...

Oil services corp reports the following eps data in its

Oil Services Corp. reports the following EPS data in its 2017 annual report (in million except per share data). Net income $1,827 Earnings per share: Basic $1.56 Diluted $1.54 Weighted average shares outstanding: Basic 1 ...

At the start of 2013 shasta corporation has 15000

At the start of 2013, Shasta Corporation has 15,000 outstanding shares of preferred stock, each with a $60 par value and a cumulative 7% annual dividend. The company also has 28,000 shares of common stock outstanding wit ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As