Practice Cases for Midterm Fall 2010 Intermediate One

Practice Cases for Midterm Fall 2010 Intermediate One -...

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Practice Cases for Midterm Fall 2010 Intermediate One PRACTICE CASE ONE Land and Gardens Incorporated (LGI) is a private company that started as a small landscaping business. LGI now operates in two businesses. The first business is real estate where they build commercial property to lease or own and develop residential subdivisions. The second business is the landscape nursery business. LGI is thinking of going public next year but is in unsure. The majority of the common shares of LGI are owned by family members. Other investors have been friends of the family. LGI has a bank loan with Big Bank which had a financial covenant with a maximum debt to equity ratio and requires audited financial statements. You have recently been hired as LGI’s accounting policy analyst. You have been asked by the Board of Directors to discuss alternatives and provide recommendations on the appropriate accounting policies for events below that have occurred during 2010 for LGI. The Board would like you to consider the impact if they decide to go public and how the accounting policies would be different. 1) In the real estate business, in 2010 LGI initiated a 100 home subdivision that is anticipated to take over two years to complete. This subdivision is in a popular location and LGI is known as a high quality developer. Buyers had been anxiously waiting for the lots to open up. By the end of the first two weeks contracts had been signed for all 100 homes. Buyers were required to pay a 10% non-refundable deposit on signing the contract. An additional 90% is due on closing. A credit check was completed on all buyers. The homes come with a one year guarantee that any deficiencies will be fixed. LGI had completed and sold thirty of the homes at their year-end Dec 31, 2010. 2) In the nursery business, LGI has corporate and residential customers. In 2010 to
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Practice Cases for Midterm Fall 2010 Intermediate One -...

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