Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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| 1. | Which
of the following is not a current asset? a. | non-breeding livestock | c. | crop inventory | b. | machinery | d. | accounts
receivable | | | | |
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| 2. | When
the size of a corn harvest exceeds locally available farm and elevator storage, what usually happens
to the local basis? a. | basis narrows | c. | basis goes out of existence | b. | basis
widens | d. | basis is usually
the same all year long | | | | |
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| 3. | Which
of the following is a disadvantage of the partnership form of doing business? a. | initial capital
is easily obtained | b. | there is access to additional skills | c. | operating
capital is more easily obtained | d. | there is unlimited liability to equity
holders | | |
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| 4. | A
farmer who wants to have the right, but not the obligation, to sell a particular commodity at a
specified price level would use a: a. | cash forward contract | c. | call option | b. | basis
contract | d. | put
option | | | | |
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| 5. | 1. Which type of business would distribute patronage
refunds? a. | proprietorship | c. | corporation | b. | cooperative | d. | partnership | | | | |
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| 6. | A
high leveraged farm or ranch business: a. | is financially sound | c. | is more susceptible to business risks | b. | can borrow money
easier | d. | uses very little
credit | | | | |
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| 7. | A
banker loaning money to farm operators may require a cash flow analysis to: a. | determine the
profitability of a farm operation | b. | collect data to complete the net worth
statement | c. | reduce the farmer’s chance of obtaining a
loan | d. | evaluate loan
repayment potential | | |
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| 8. | When
a farmer increases his investment in land, buildings, and equipment without increasing the total
units of production, the cost per unit of production: a. | decreases | c. | varies with the
operator | b. | increases | d. | remains the same | | | | |
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| 9. | Which
of the following is a fixed expense? a. | depreciation | c. | interest on a short term loan | b. | cost of computer
paper | d. | fuel for
tractors | | | | |
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| 10. | Specialization in crops or livestock in a farm business tends to: a. | increase income
and increase risk | c. | decrease
income and decrease risk | b. | decrease income and increase
risk | d. | increase income
and decrease risk | | | | |
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| 11. | The
demand curve represents a relationship between: a. | total cost and total revenue | c. | price and quantity produced | b. | price and
quantity purchased | d. | profits and
losses | | | | |
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| 12. | Current assets minus current liabilities is: a. | variable
input | c. | profit | b. | supply | d. | working capital | | | | |
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| 13. | A
farmer using the accrual system of accounting purchases gasoline on credit. a. | should not be
recorded since it has not be been paid for | b. | should be recorded as a liability with no other entries
made | c. | should be
recorded as an expense with no other entries made | d. | should be
recorded as an expense and also a liability | | |
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| 14. | Commercial fertilizer should be applied to a crop as long as: a. | the added
fertilizer increases yields per acre | b. | the added fertilizer costs less than the first unit of
fertilizer applied | c. | the added fertilizer increases gross farm
income | d. | the added fertilizer returns more than the added cost of the
fertilizer | | |
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| 15. | If
the strong dollar reduces the demand for U.S. wheat exports, then we can expect the market price for
wheat in the United States to: a. | increase | b. | decrease | c. | remain unchanged | d. | increase or
decrease depending on the amount of the demand decrease | | |
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| 16. | If
the government were to set the price for milk at an artificially high price, what is likely to
occur? a. | a
surplus | c. | a
shortage | b. | a monopoly | d. | a slump | | | | |
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| 17. | Which
of the following is not one of the three parts of a net worth statement? a. | expenditures | c. | liabilities | b. | assets | d. | net worth | | | | |
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| 18. | The
ability of a business to make enough cash to pay bills without disrupting the business is
called: a. | solvency | c. | equity | b. | liquidity | d. | gross receipts | | | | |
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| 19. | Variable costs may also be called: a. | fixed costs | b. | operating
cost | c. | accrual
cost | d. | mortgage
cost | e. | all of the
above | | |
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| 20. | Where
would the farm business profit for a year be found? a. | the balance
sheet | c. | the income
statement | b. | the cash flow statement | d. | the net worth statement | | | | |
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| 21. | Good
record keeping system includes: a. | a record of cash income and cash
expense | b. | a total farm inventory | c. | a depreciation
schedule | d. | all of the above | | |
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| 22. | Which
of the following is considered a capital investment? a. | dairy
cow | c. | feeder
pigs | b. | lease on
tractor | d. | propane gas for
the grain dryer | | | | |
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| 23. | Another term for debt is: a. | asset | c. | liability | b. | insolvency | d. | equity | | | | |
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| 24. | Crop
insurance, hedging, options, and liability insurance provide a means of: a. | increasing
profits | c. | reducing
risks | b. | increasing working capital | d. | lowering costs | | | | |
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| 25. | Which
of the following is most closely related to achieving “economies of size?” a. | opportunity cost
of equity capital and labor | b. | spreading out fixed costs | c. | increasing
variable costs per unit | d. | reducing cash costs | | |
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Income Statement Analysis
Use the
following to answer questions 26 - 29.
Soybean sales
$53,000
Hay
sales
3,500
Building depreciation
8,800
Increase in
livestock inventory
21,000
Feeder calf
sales
62,000
Total farm cash operating expenses
53,000
Machinery depreciation
12,000
Decrease in crop inventory
4,000
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| 26. | What
is the gross cash farm income for this business? a. | $109,500 | c. | $135,500 | b. | $118,500 | d. | $139,500 | | | | |
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| 27. | What
is the net cash farm income for this business? a. | $61,700 | b. | $65,500 | c. | $82,500 | d. | $86,500 | | |
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| 28. | What
is the net farm income for this business? a. | $69,300 | c. | $61,700 | b. | $40,700 | d. | $82,700 | | | | |
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| 29. | What
is the taxable income for this producer if we use the cash method of accounting? a. | $44,700 | c. | $97,700 | b. | $65,700 | d. | $118,700 | | | | |
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Net Worth Statement Analysis
Use the
following information to answer questions 30 - 33.
Accounts from John Doe Farms Net Worth
Statement.
Accounts Payable
$10,000
Crop Supplies
4,500
Cash
12,000
Land
257,000
Equipment
79,000
Taxes Payable
7,000
Note Payable
(Current portion = $10,000) 125,000
Growing
Crops
9,000
Stored
Crops
21,000
Accrued Interest
7,500
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| 30. | What
is the total value of the assets of John Doe Farms? a. | $373,500 | c. | $149,500 | b. | $392,500 | d. | $382,500 | | | | |
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| 31. | What
is the net worth of John Doe Farms? a. | $233,000 | c. | $253,000 | b. | $223,000 | d. | $248,000 | | | | |
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| 32. | What
is the current ratio for John Doe Farms? a. | 1.09 : 1 | c. | 2.56 : 1 | b. | 1.35 :
1 | d. | 1.90 :
1 | | | | |
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| 33. | What
is the debt to equity ratio for John Doe Farms? a. | .64 : 1 | c. | .49 : 1 | b. | .15 :
1 | d. | .50 :
1 | | | | |
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Investment Analysis
A farmer has
a $150,000 loan amortized at 9% interest for 15 years. Use the information to answer questions 34
& 35. Note: round answers to the nearest dollar.
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| 34. | The
loan’s yearly annual payment is $18,600. How much of the first year’s payment is
principal? a. | $13,500 | c. | $7,500 | b. | $18,600 | d. | $5,100 | | | | |
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| 35. | If
the 15th and final payment includes $1,536 of interest, what is the outstanding principal
balance after the 14th payment? a. | $16,064 | c. | $17,064 | b. | $16,500 | d. | $18,600 | | | | |
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