Granger Paper Co. Case

In: Business and Management

Submitted By ngeiser
Words 1137
Pages 5
Acc 327
Case No. 2
Spring 2012

It is January 20, 2012, and you are the senior auditor in charge of auditing the 2011 year-end financial statements for Granger Paper Company (GPC). GPC is a profitable company that has been in business for many years. It is primarily a manufacturing company that buys wood from timber growers and converts the wood into a variety of paper products. It is a publicly traded company with a reputation as a good corporate citizen. Although GPC has been audited many times in the past by external CPA firms, this is the first year your firm has conducted the audit. GPC’s total revenue for 2011 is $80 million. In examining the revenue for the year, you notice that $3 million of the revenue does not come from GPC’s primary operations (i.e., revenue from sales of paper goods). This $3 million in revenue is labeled as timber revenue in GPC’s books. This strikes you as odd because, generally, GPC buys timber. That is, timber is part of the cost of goods sold for GPC and, as such, is an expense. You ask GPC’s controller, Pat Smith, why GPC is recognizing timber revenue? Pat informs you that GPC began diversifying its operations a few years ago. A natural extension of its business seemed to be growing and selling timber. So, five years ago, GPC bought 10,000 acres of land in Alabama and Mississippi for purposes of growing timber. The land was purchased from a previous timber grower that had recently harvested its timber. Immediately after purchasing the land, GPC planted pine tree seedlings on all 10,000 acres. You ask Pat what is the typical growing time for pine trees? Pat informs you that under normal circumstances the growing time from seedling to a mature pine tree ready for harvesting is about 20 years. From this, it is clear to you that GPC did not harvest and sell any of its pine trees in 2011. You next ask Pat why…...

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