Course Name :Accounting For Decision Making
Title of the Assignment : MacCloud Winery Assignment ( Group )
Case 14-4: Accounting at MacCloud Winery
Q1: Should the leased building be accounted as an asset? Should the agreement to pay lease rentals be recorded as liability? Justify your answers. Do Not refer FASB rules.
Should the leased building be accounted as an asset?
The answer is YES. It is an asset, as the leased building is required to perform the winery operation. Without the building, there will be no place for operation, thus the business canâ€™t run. It is a fixed asset which falls under the Property, Plant and Equipment.
Should the agreement to pay lease ...view middle of the document...
From this case, Mike purchased five acres of land for $250,000 and this asset will incurred his financial transaction. Some more, Mike borrowed from Bank $180,000 and to repaid the $10,000 including bank interest of 6% and will be pay every about $10600. This Installment payment will incurred every year as expenses.
For vines, he bought grapevines about $50,000, transportation is $2500 and extra help for planting was $10,000($2000@5acres). Expenditures occur when the vines are matured in five years but the expenses will occur every year. The transportation expense is incurred on that particular year. For High quality of grapes to spend $5000, So that expenses will incurred in every year until the sixth growing season.
The fertilizing and water expenses will incurred every year as $1500 for per acre. He will spend every year to get high enough quality to produce vines.
In simple accounting equation shows that,
A = L + OE
a) Land 250,000 = 180,000 + 70,000
b) grapevines 50,000 = 50,000 + Nil
c) transportation 2,500 = 2,500 + Nil
d) Employee 10,000 = 10,000 + Nil
e) Fertilizing& water 12,500 = 12,500 + Nil
So, every expense is incurred on every year on grape vine matured and sells to consumers. Then, the expenses to oblige paid in future by terms.
Q4. Without changing your answers to the above questions, consider the following facts.
Mikeâ€™s greatest concern is that his vines will contract Phylloxera disease, â€œBlack Gooâ€ syndrome or Pierceâ€™s disease. While these conditions do not kill the vines immediately, they reduce the production of quality grapes by approximately 50 percent. Further, the vines generally die approximately 10 years after contracting the condition. While Mike will probably be able to avoid Phyloxera by planting genetically treated vines, incidents of Black Goo and Pierce disease have been increasing over the last several years and are most dangerous to...