Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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| 1. | Which type
life insurance is likely to have the lowest monthly premium? a. | whole
life | c. | whole life family
coverage | b. | term | d. | the premiums are usually the same | | | | |
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| 2. | If you apply
for a second mortgage on your farm and the prime rate is the same as when you obtained the first
mortgage, the interest rate for the second mortgage is likely to be
than the interest rate of the first mortgage? a. | higher | c. | lower | b. | much lower | d. | lower or higher | | | | |
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| 3. | Which of the
items listed below is a. liability? a. | $5,000 mortgage | c. | truck | b. | $5,000 bank account | d. | house | | | | |
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| 4. | Joe put
$2,000 into an IRA during 1985. When he paid his federal income tax for 1985 he paid
tax on this IRE contribution.
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| 5. | If Pam's
production cost for cabbage is $3.00 per bag and the price she receives is $5.00 per bag, how much
would the price have to be for her to double the profit she makes at $5.00? a. | $6.00 | c. | $8.00 | b. | $7.00 | d. | $10.00 | | | | |
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| 6. | Which of the
following is a variable cost for a swine farmer? a. | feed | c. | medicine | b. | feeder pigs | d. | all the above | | | | |
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| 7. | When trying
to decide between two enterprises to add to the farm, a producer would use
a
budget. a. | partial | c. | split | b. | trial | d. | complete farm | | | | |
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| 8. | Tom's assets
amount to $40,000 and his liabilities are $3,000. What is his net worth? a. | $37,000 | c. | $40,000 | b. | $43,000 | d. | $112,000 | | | | |
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| 9. | Just before
John planted his peanuts, there was a severe drought and he has decided not to plant at all this
season. John stands to lose
. a. | his fixed
costs | c. | his variable
costs | b. | his assets | d. | all the above | | | | |
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| 10. | Maynard
worked for his father during the summer instead of a job offered to him at the feed store. The
income he gave up at the feed store was a/an
cost. a. | asset | c. | liability | b. | opportunity cost | d. | capital | | | | |
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| 11. | Ann was
reviewing her old tax returns and discovered that she had made a mistake on her 1984 return and had
over-paid her taxes that year. She should . . . a. | forget it, that's water
over the dam. | b. | file an amended return. | c. | call the IRS's toll
free number and file a verbal return. | d. | subtract the amount overpaid in 1984 from her next year's
tax. | | |
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| 12. | If pork and
beef products compete and beef prices rise, then pork demand will probably . . . a. | rise | c. | remain
unchanged | b. | decrease | d. | any of these three are possible | | | | |
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| 13. | Fixed cost
plus
cost equals total cost. a. | variable | c. | enterprise | b. | opportunity | d. | farm | | | | |
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| 14. | If the
Government were to set the price of milk at an artificially high price then a
is likely to occur. a. | surplus | c. | shortage | b. | monopoly | d. | slump | | | | |
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| 15. | If a
producer has gross sales of $1,000,000, then it can be said that . . . a. | he is a rich
man. | c. | his profit margin was
high. | b. | he had a very good year. | d. | none of the above | | | | |
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| 16. | Cindy has
the option of investing her money in non-taxable bonds at 8% interest or in a money-market fund at
10%. She is in the 40% income tax bracket, what should she do? a. | invest in the
bonds | b. | invest in the money-market fund | c. | the net return is the
same for either option | d. | invest 50-50 in bonds and the money-market
fund | | |
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| 17. | The
Commissioner of Agriculture proposes a new program to stabilize the price of corn by instituting a
reserve system. This will probably work by . . . a. | reducing the quantity
of corn produced. | b. | insuring that the corn gets to the areas where hungry people
are. | c. | releasing supplies in
short production years and storing corn in years of heavy production. | d. | by setting price
support levels. | | |
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| 18. | A producer
was able to obtain the following yields with the given fertilizer applications (all other factors
were equal). What economic principle is demonstrated by the results?
100 bu. 1500 lbs.
fertilizer $300 gross returns
135
bu. 1700 lbs. fertilizer $405 gross
returns
170 bu. 1900 lbs.
fertilizer $510 gross returns
205
bu. 2100 lbs. fertilizer $615 gross
returns
200 bu. 2300 lbs.
fertilizer $600 gross returns a. | supply and
demand | c. | relative
proportion | b. | diminishing returns | d. | net worth ratio | | | | |
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| 19. | The grain
embargo against Russia is an example of... a. | the global economy equilibrium theory. | b. | governmental
interference with the free market. | c. | an artificial increase in demand. | d. | an artificial decrease
in demand. | | |
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| 20. | A producer
realized that he would have to borrow money for operating capital at some point during the year but
didn't know exactly when. His Vocational Agriculture teacher suggested that he should prepare a
to answer this particular question a. | budget | c. | cash flow statement | b. | net worth
statement | d. | statement of
assets | | | | |
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| 21. | James
thought that his sprayer would last five years. He should . . . a. | depreciate it over a
period of five rears. | b. | forget it, depreciation cannot be taken for equipment that lasts less
than six years. | c. | depreciate it over a period of ten years. | d. | depreciate it over a
period of fifteen years. | | |
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| 22. | A group of
Vocational Agriculture students agreed to pool their money and purchase feed in bulk and distribute
it at cost to each student as needed. This was a simple form of a
. a. | cooperative | c. | partnership | b. | corporation | d. | business | | | | |
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| 23. | In an
on-going farm business, which of the following is considered a fixed cost? a. | depreciation on
equipment | c. | fuel | b. | seed | d. | inventory | | | | |
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| 24. | There is a
great deal of difference between which of these terms: a. | inventory - goods on
hand | c. | hedging -
speculating | b. | net income - profit | d. | total sales - gross sales | | | | |
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| 25. | If you
obtain a $5,000 balloon loan for five years and agree to pay interest-only for the period, then you
will owe
at the end of five years a. | $5,000 | b. | $5,500 | c. | $4,500 | d. | there is insufficient information to answer the
question. | | |
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| 26. | You are a
soybean producer and want to remove some of the risk involved. You could . . . a. | increase your
acreage | c. | forward contract the
beans | b. | rent land instead of owning | d. | borrow money | | | | |
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| 27. | A soybean
producer is attending a class on soybeans in the futures market at the Vocational Agriculture
department. He hears the term "basis" in the discussion. "Basis@ is . .
. a. | the amount the hedger
has invested in the soybeans. | b. | the difference between the futures price for two
commodities. | c. | the difference between futures prices for two different delivery
months | d. | the difference between the local cash price and the futures
price. | | |
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| 28. | If a
tractor's use is increased from 300 to 400 acres per year its . . . a. | total variable cost
will decline. | c. | average fixed cost per
acre will decline. | b. | variable cost per acre will increase. | d. | total fixed cost will decline. | | | | |
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| 29. | Which of the
following is not one of the three basic forms of business organizations? a. | corporation | c. | consortium | b. | partnership | d. | sole proprietorship | | | | |
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| 30. | Under
current IRS rules and regulations concerning depreciation, most farm equipment is
... a. | 3 year
property | c. | 10 year
property | b. | 5 year property | d. | 15 year property | | | | |
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| 31. | In
considering farm financial statements, the balance sheet is also referred to as a/an . .
. a. | enterprise
record | c. | net worth
statement | b. | cash flow projection | d. | income statement | | | | |
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| 32. | Production
costs that do not vary with the level of total production and include items such as taxes and
depreciation are called . . . a. | variable costs | c. | adjustments to income. | b. | fixed
costs | d. | marginal
costs | | | | |
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| 33. | Current
ratio is one of the most used of all financial management ratios. It measures the liquidity of
your business - the short-run ability of your operation to service debt. The procedure for
calculating the current ratio is
. a. | total current
liabilities divided by total liabilities | b. | total current liabilities divided by net
worth | c. | total current assets divided by the total current
liabilities | d. | total liabilities divided by net worth | | |
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| 34. | A tractor
costing $32,000 is purchased. The assumed life is 7 years, and salvage value is established at
$4,000. If $4,000 depreciation is taken each year, the method of depreciation is
. a. | declining
balance | c. | sum of the
years-digits | b. | double declining balance | d. | none of these | | | | |
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| 35. | Mr. Smith
gathered 10,000 bushels of corn from his farm in October, 1985. He stored the corn and later
sold it in May, 1986. With the accounting method he uses, he reported the value of the corn as
income on his 1985 income tax return. His accounting method is the
. a. | capitalization
method | c. | amortization
method | b. | cash method | d. | accrual method | | | | |
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| 36. | In a free
market, the price of a product is determined by the
. a. | capitalization
method | c. | amortization
method | b. | cash method | d. | accrual method | | | | |
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| 37. | A $25,000
loan is scheduled for repayment over a 10 year period, with equal annual principle payments of
$2,500. The loan is said to be
. a. | depreciated | c. | deferred | b. | discounted | d. | amortized | | | | |
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| 38. | All of the
following items are said to be in-elastic with regard to demand except
. a. | blood | c. | wheat | b. | salt | d. | water | | | | |
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| 39. | Form 1040
schedule F is a/an
. a. | income tax form for
farmers | c. | accounting
method | b. | depreciation form | d. | none of the above | | | | |
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| 40. | A rise in
the price of all the following materials would change the demand for which of the materials
least? a. | eggs | c. | gasoline | b. | beef | d. | pork | | | | |
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| 41. | A farmer's
income tax should be filed no later than
provided he has filed his estimated tax by Jan. 15th. a. | March
3 | c. | May
7 | b. | April
15 | d. | January
15 | | | | |
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| 42. | Which item
is not a tax deductible expense? a. | Cash purchase of grain | c. | Principle payment for the family car. | b. | Interest payment for a
farm loan | d. | Payment for farm
labor. | | | | |
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| 43. | James told
his agriculture teacher that he was keeping records to satisfy tax filing requirements. His teacher
was correct in saying... a. | you should keep better records. | b. | filing taxes should not
be the main objective of a record keeping system. | c. | more extensive records
are needed for decision making. | d. | all the above. | | |
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| 44. | What item
could be used as collateral to secure operating capital? a. | machinery | c. | capital
analysis | b. | cash flow statement | d. | term insurance policy | | | | |
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| 45. | Thomas needs
to borrow money to produce a crop of strawberries. Of the following choices,
Is the most logical source. a. | the Crop Insurance Company | c. | Production Credit Association | b. | Federal Land
Bank | d. | Cooperative Extension
Service | | | | |
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| 46. | If a
producer had an opportunity to choose the amount of the payment on his long term loans, which would
he use to determine the amount he could pay? a. | price of the product | c. | rental share | b. | yield per
acre | d. | net
income | | | | |
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| 47. | Interest
rates are determined by the . . . a. | Federal Land Bank. | b. | United States
President. | c. | commercial banks | d. | savers and borrowers
interacting in the money market. | | |
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| 48. | The total
quantity of goods and services that buyers are willing and able to buy at various prices at a given
time is called
. a. | supply | c. | demand | b. | depreciation | d. | capital | | | | |
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| 49. | The
is designed to prevent sudden drastic price declines or rises in the futures
market. a. | trading
limit | c. | lower
limit | b. | price capacity | d. | spot price | | | | |
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| 50. | Which of the
following is a commodity traded on the futures market? a. | hogs | c. | chrysanthemums | b. | poinsettias | d. | all the above | | | | |
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The
following information is used for questions 51-54.
Income Statement:
Income
cash receipts
$142,941
sales of machinery
13,500
sales of breeding stock
7,823
Closing
Inventory
livestock
$90,330
corn
25,620
winter grazing
7,680
hay
250
Beginning
Inventory
livestock
$87,550
corn
18,750
winter grazing
6,240
hay
720
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| 51. | What is the
net change in inventory? a. | + $100,620 | c. | + $18,346 | b. | - $10,623 | d. | + $10,620 | | | | |
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| 52. | How much
total cash was received? a. | $142,941 | c. | $164,264 | b. | $21,323 | d. | + $10,620 | | | | |
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| 53. | What was the
total income received? a. | $164,264 | c. | $142,941 | b. | $174,884 | d. | $234, 332 | | | | |
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| 54. | What will be
the beginning inventory for the next year? a. | $123,880 | c. | $174,884 | b. | $113,260 | d. | $142,941 | | | | |
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Use the
following information to answer questions 55 - 58.
John's financial statement includes the following
assets.
cash
$900
feed, crops, and supplies
40,200
livestock
yearlings
25,000
calves
4,950
shoats, over 100 lbs.
6,110
shoats, under 100 lbs.
3,100
pigs
2,640
breeding
livestock 48,530
machinery
79,365
buildings
20,330
farmland
431,835
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| 55. | What is the
total value of the current assets listed? a. | $82,900 | c. | $210,795 | b. | $41,100 | d. | $452,165 | | | | |
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| 56. | What is the
value of the Intermediate assets listed? a. | $82,900 | c. | $0 | b. | $127,895 | d. | $210,795 | | | | |
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| 57. | What is the
value of the long-term assets? a. | $452,165 | c. | $662,960 | b. | S431,835 | d. | $210,795 | | | | |
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| 58. | The total
value of the assets listed is
. a. | $452,165 | c. | $837,321 | b. | $662,960 | d. | $667,345 | | | | |
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Use the
following information to answer questions 59 - 62.
Amy is considering raising her calves to stocker size before selling
rather than selling them at weaning. Given the following information, help her make the correct
decisions.
-50 calves are born and sold from Amy's farm each
Year.
-2% death loss is expected if the calves are carried to stocker
size.
-stockers sell for $450
-calves sell for
$279
-sales commission is 3% of the sale price on calves and
stockers
-added veterinary costs for stockers is $200
-added feed costs for
stockers is $750
-interest on the value of the calves is
$1,048
Additional
Costs Additional Returns
Reduced Returns Reduced
Costs
Total reduced income = additional costs
Total added income = additional
+ reduced returns
. returns + reduced costs
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| 59. | What would
be the net change in income for Amy if she raised the calves to stocker size? a. | $8379 | c. | $373 | b. | $22,468.50 | d. | $5859 | | | | |
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| 60. | What will be
Amy's gross returns with the proposed change? a. | $8379 | c. | $373 | b. | $5859 | d. | $22,050 | | | | |
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| 61. | What would
be the net change in profit if the stockers sold for $475 instead of $450? a. | $1225 | c. | $1000 | b. | $5859 | d. | $8379 | | | | |
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| 62. | What is the
additional fixed cost for the proposed change? a. | $0 | c. | $750 | b. | $2659.50 | d. | $1395 | | | | |
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| 63. | You own a
farm valued at $125,000 and owe a $75,000 debt for a tractor and equipment and owe $15,000 for
fertilizer, seed and equipment. Your ratio of assets to liabilities is . . . a. | 2 :
1 | c. | 1.39 :
1 | b. | 1.5 :
1 | d. | 3 :
1 | | | | |
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| 64. | A farmer
purchases a new combine for $45,000 and depreciates it as a 5 year property using the accelerated
cost recovery system (ACRS). How much depreciation would he have left at the end of the third
year?
ACRS Depreciation Schedule
1st year
15%
2nd year
22 %
3rd-5th
Years 21% a. | $6750
| b. | $9450
| c. | $16,650
| d. | $18,900
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| 65. | Farmer Smith
borrowed $10,000 for a short period of time to supply operating capital. The simple interest rate
charged was 10% and the financial institution operates on a 365 day year. The daily accrual rate is
. a. | $.7573 | c. | $2.7397 | b. | $1,000.000 | d. | $27.7700 | | | | |
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| 66. | Oak Leaf
Farms Inc., presently owes current liabilities in the amount of *25,000, intermediate term
liabilities in the amount of $50,000, and long term liabilities in the amount of $125,000. In order
for the corporation to be considered solvent, total assets must be greater than
. a. | $31,250, 125% of
current liabilities. | b. | $125,000, 125% of combined current and intermediate term
liabilities | c. | $200,000 | d. | $175,000 | | |
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| 67. | When Byron
completed his livestock project, he realized that his total expense amounted to $950 and total income
amounted to $1,045. The percentage net return realized was
. a. | 9% | c. | 90.91% | b. | 10% | d. | none of these | | | | |
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| 68. | The Brown
Farm partnership enjoys an owner's equity ratio of .75 : 1. If total assets owned amount to
$100,000 the net worth of the partnership is . . . a. | $133,333 | c. | $25,000 | b. | $75,000 | d. | none of these | | | | |
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| 69. | The original
cost of a new tractor was $32,000. Investment credit was claimed in the amount of $3,200. To date,
$8,000 has been claimed for depreciation. The present adjusted basis for the tractor is
. a. | $20,800 | c. | $24,000 | b. | $27,200 | d. | none of these | | | | |
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Use the
following information to answer questions 70 - 71.
The following information has been taken from your
records.
Addition to income from last $1,000
invested:
Swine Cattle
Poultry
1,200 1,300
1,400
1,200 1,000
1,300
1,100 1,000
1,000
1,000 900
1,000
1,000 900
900
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| 70. | What is the
most profitable enterprise combination for $5,000 invested? a. | 2 units of swine, two
units of cattle, 1 unit of poultry | b. | 5 units of swine | c. | 3 units of cattle and
two units of poultry | d. | 2 units of poultry, 2 units of swine, 1 unit of
cattle | | |
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| 71. | If you had
one thousand dollars more to invest, which enterprise should you chose? a. | Swine | c. | Poultry | b. | Cattle | d. | one of each | | | | |
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| 72. | Straight
line depreciation over a five year period is used for a piece of equipment that cost $1,000. What is
the amount of depreciation taken each year?
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Use the
following information to answer questions 73 - 75.
Shade trees for landscape purposes are planted in a three acre field
and spaced 5 ft. apart in rows that are 8 ft. apart. Each tree delivered to market can be sold
for $18.
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| 73. | What is the
gross value of the field of trees? a. | $9,879 | c. | $13,343 | b. | $34,879 | d. | $58,806 | | | | |
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| 74. | If the
production cost is $7 per tree and if it cost $4 to dig and deliver each tree to market, what is the
net return for the field? a. | $12,218 | c. | $6,981 | b. | $22,869 | d. | $23,201 | | | | |
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| 75. | How much
would the price of each tree have to be to double the amount of profit as determined in
#47
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