Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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| 1. | "Borrowing power -- the potential debt an individual or business can incur,
usually in times when equity capital is insufficient," is a good definition of
______. a. | budgeting | c. | debt | b. | resources | d. | credit | | | | |
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| 2. | An
agricultural manager should have goals and objectives established for the efficient operation of a
business. What is an advantage of setting goals? a. | goals almost guarantee
a profit | b. | goals reduce employee problems | c. | goals show where you
are going -- provides a "road map" and gives direction to the
business | d. | all of the above | | |
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| 3. | Why is it
important to keep accurate records when operating a business? a. | to comply with income
tax reporting requirements | b. | to assist in planning and management | c. | to determine
profitability | d. | all the above | | |
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| 4. | Receipts
are.. a. | income received from
sales of commodities produced, services rendered , etc. | b. | ordinary and necessary
costs of operating a business. | c. | items used in two or more production cycles. | d. | items that are normally
used up during a production cycle | | |
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| 5. | All debt
obligations are ____________. a. | dividends | c. | liabilities | b. | checks | d. | financial statements | | | | |
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| 6. | What is
another term used to describe a balance sheet? a. | income statement | c. | enterprise statement | b. | net worth
statement | d. | none of the
above | | | | |
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| 7. | When a loan
is secured, it means that... a. | the borrower has put up property worth as much or more than the
principle of the loan. | b. | the lender has no risk on the loan. | c. | the government has
guaranteed the borrower will repay the loan. | d. | all the
above. | | |
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| 8. | Which of
these does a profit and loss statement not accomplish? a. | provides a basis for
determining return to the resources used in the business | b. | measures the
profitability of operations | c. | details cash flow problems | d. | measures actual income
or loss for a specific period of time | | |
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| 9. | What is
not a specific purpose of a cash flow analysis? To... a. | determine the
profitability of a particular operation or enterprise. | b. | facilitate
communication between borrower and lender. | c. | help project future needs and determine if adjustments need to be made
in future plans. | d. | provide a basis for financial control based on comparison of actual
cash inflows and outflows with planned flows. | | |
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| 10. | What type
credit would be needed to purchase inputs for producing commodities which will be sold within the
next year? a. | long-term | c. | intermediate-term | b. | short-term | d. | none of the above | | | | |
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| 11. | What is a
line of credit? a. | It is a standard loan
where a borrower obtains a given amount for one year. | b. | It is when a borrower
obtains the right to borrow up to some set amount. It can be borrowed all at once or
periodically as needed. | c. | It is the opposite of a balloon loan. | d. | There is no such
loan. | | |
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| 12. | When
figuring the Net Worth of a business the correct formula to use is _______________. a. | Net Worth =
Assets + Liabilities | c. | Net Worth =
Assets - Liabilities | b. | Net Worth = Liabilities - Assets | d. | none of the above | | | | |
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| 13. | One example
of a current asset is (a) ________. a. | mortgage | c. | buildings | b. | machinery | d. | inventory held for sale | | | | |
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| 14. | Intermediate
liabilities include... a. | a mortgage on real estate. | c. | the bank account balance. | b. | a mortgage on
equipment. | d. | all of the
above. | | | | |
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| 15. | Which of the
following statements is correct about the law of demand? a. | High price = less
product supplied. | c. | High price = more
product demanded. | b. | Low price = more quantity demanded. | d. | low price = more product supplied. | | | | |
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| 16. | A business
is said to be ________ if total assets exceed total liabilities. a. | liquid | c. | flat | b. | solvent | d. | even | | | | |
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| 17. | An
Enterprise budget is... a. | an estimate of the economic effects of a change in an
enterprise. | b. | a statement of expected returns and costs associated with one
production process. | c. | a financial plan for the entire farm. | d. | None of the
above. | | |
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| 18. | The Smiths
custom harvest wheat. They are considering adding custom harvesting of corn to their
business. They need to study a(n) _____________ budget in making their
decision? a. | whole
farm | c. | partial | b. | enterprise | d. | None of the above. | | | | |
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| 19. | No matter
what enterprise is undertaken, _____________ must be paid. It does not vary with the level of
production in the short run. a. | feasibility costs | c. | fixed costs | b. | fixed assets | d. | float costs | | | | |
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| 20. | A physical
count of all assets in a business, usually done once every year for income tax purposes or
continuously to monitor available assets. It is called a (n) ______________. a. | invitee | c. | income | b. | internal count | d. | inventory | | | | |
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| 21. | A market
situation where one large company owns the complete manufacturing or producing process and controls
prices and supply at will is called a ______________. a. | market | c. | hedge | b. | margin | d. | none of the above | | | | |
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| 22. | A nonprofit
business organization that is owned and controlled by the members for the mutual benefit of the
members is a ___________. a. | cooperative | c. | community | b. | corporation | d. | convent | | | | |
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| 23. | Contracts
are... a. | informal agreements
between two or more people or businesses. | b. | formal written documents between two or more people or
businesses. | c. | binding agreements. | d. | all of the
above. | | |
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| 24. | A document
that shows the exact size, location, ownership and method of ownership of property is called a
__________. a. | Trust | c. | Deed | b. | Debit | d. | none of the above | | | | |
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| 25. | The excess
of returns over expenditures is known as _________. a. | losses | c. | remains | b. | dividends | d. | profit | | | | |
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| 26. | The decline
in value of an asset over its useful life associated with use, age and obsolescence is known
as... a. | appreciation. | c. | inventory. | b. | hedging. | d. | depreciation. | | | | |
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| 27. | Other things
being equal, a decrease in the amount of an agricultural commodity offered for sale will result
in... a. | a lower
price. | c. | no change in
price. | b. | a higher price. | d. | none of the above | | | | |
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| 28. | When a
banker asks a person to pledge his land, livestock or similar property to obtain a loan, this
property is referred to as... a. | depreciation. | c. | collateral. | b. | a risk. | d. | a trust | | | | |
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| 29. | Which of the
following is not a characteristic of a cooperative? a. | They are owned by
members who use them. | b. | Cooperative members elect a board of
directors. | c. | They emphasize member control. | d. | They emphasize high
profits. | | |
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| 30. | A business
owned and managed by one person is called (a) _____. a. | single
coop | c. | limited
ownership | b. | corporation | d. | sole proprietorship | | | | |
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| 31. | Which of the
following is not an advantage of a Cash Flow projection? a. | It shows the operator
when excess cash will be available, and when cash deficits will occur. | b. | It determines long term
profitability. | c. | It provides for budgeted loans that are borrowed only for the periods
through which they are required. | d. | It helps you evaluate the relationship of your short term debt to your
repayment capacity | | |
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| 32. | Borrowing
money is a good way to increase _________. a. | intangible products | c. | tangible products | b. | leverage. | d. | none of the
above | | | | |
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| 33. | Hedging
is... a. | a form of
speculation. | b. | a way of buying corn. | c. | a strategy that
decreases price risk through futures market transactions. | d. | trying to guess what
your product will sell for. | | |
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| 34. | The
principle components of an agricultural commodity option include... a. | supply, demand and
price. | b. | cattle, corn, goats and horses. | c. | market outlook,
futures, selling and delivery. | d. | premium price, underlying futures price, strike price, short-term
interest rate and expiration date. | | |
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| 35. | John owes
Sue $1000 for grass seed but he wants to pay her in 6 months. She said, "that's fine, but
the bill will be $1060 in six months." John hit the roof but he agreed when Sue explained
the _________ to him. a. | time value of money | c. | state banking act regulations | b. | federal lending
laws | d. | cash flow
principle | | | | |
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| 36. | What is
compound interest? a. | It reduces the value of earned money. | b. | It lets you make money
on interest paid to you. | c. | It helps you pick early benefits over what you chose
yesterday. | d. | It is a way of investing in your crop. | | |
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| 37. | Larry has
hedged his peanut crop. If he makes the predicted yield and his costs do not change he will
... a. | make a lot more money
if the price goes up. | b. | lose money if the price goes down. | c. | make almost exactly
what he predicted no matter how low or how high the price goes. | d. | make more or less
profit depending on the degree and direction of a price change | | |
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| 38. | Hedgers
... a. | always want the price
to decrease. | c. | do not produce a
product to sell. | b. | are seeking to reduce their risk. | d. | all the above. | | | | |
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| 39. | Speculators
in the futures market... a. | are generally considered necessary for proper function of the
market. | b. | accept the price risk the hedgers are seeking to
avoid. | c. | make a profit or lose money if prices change based on their position
in the market. | d. | all the above. | | |
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| 40. | All of the
following are said to be elastic with regard to demand except... a. | pork. | c. | beef. | b. | salt. | d. | hot dogs | | | | |
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| 41. | Another name
for forward pricing with futures contracts is... a. | hedging. | c. | gambling. | b. | speculating. | d. | none of the above | | | | |
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| 42. | A budget is
a ... a. | supply and demand curve
extended to include the future. | b. | plan that projects expected returns and
costs. | c. | consumption plan. | d. | a hedge of an
agricultural commodity | | |
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| 43. | Which of the
following is a variable cost? a. | depreciation | c. | taxes | b. | seed | d. | none of the above | | | | |
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| 44. | Partial
budgets help analyze... a. | changes within enterprise budgets. | c. | cash flow. | b. | the total farm budget. | d. | depreciation costs. | | | | |
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| 45. | The
___________ method of accounting is most widely used by farmers. a. | accrual | c. | cash | b. | cigar-box | d. | dash-board | | | | |
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| 46. | Rod made
$31,518 profit on his nursery operation last year. His capital investment was $204,545.
What was his rate of return to capital invested? a. | 12% | c. | 15.41% | b. | 9% | d. | 18.23% | | | | |
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| 47. | Which items
are most readily converted into cash without loss? a. | current
assets | c. | long term
assets | b. | intermediate or working assets | d. | fixed or long term assets | | | | |
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| 48. | Select the
item that is not deductible on Federal Income Tax returns. a. | Depreciation | c. | Feed
costs | b. | Fertilizer costs | d. | All the above are deductible | | | | |
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| 49. | Joe needs
some cash to operate his greenhouses. He owes $12,000 to a mortgage company on his property but
it is worth $300,000. Since the $12,000 loan is at 3.5% and current rates are at 13%, he does
not want to give that loan up. How can he borrow money against his property? a. | with a front end
loan | c. | with a new first
mortgage | b. | with a balloon mortgage | d. | with a second mortgage | | | | |
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| 50. | Vern sued
his boss, Wilber Wilt, because he fell through a hole in the storage room floor and broke his
leg. The judge found Wilber guilty because the hole had been there for months and two other
people had also hurt themselves by falling in the hole. The judge said, "You failed to
take ordinary care to protect your worker. In other words I find you guilty of
_________." a. | homicide | c. | term
liability | b. | negligence | d. | workman's compensation | | | | |
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| 51. | The
following information is to be used for questions 51 - 52.
A producer wishes to fertilize his corn crop, 175 acres, with 200
pounds of actual nitrogen per acre. He can choose between the following three types of
fertilizer at the prices shown.
Choice #1 - 18-0-0 at $
90.00 per ton.
Choice #2 - 15-0-0 at $85.00 per ton.
Choice #3 - 33-0-0 at
$275.00 per ton.
If the producer selects the 33-0-0, how much should he
purchase for his 175 acres of corn? a. | 600 pounds | c. | 3.5 tons | b. | 105.5 tons | d. | 52.5 tons | | | | |
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| 52. | The
following information is to be used for questions 51 - 52.
A producer wishes to fertilize his corn crop, 175 acres, with 200
pounds of actual nitrogen per acre. He can choose between the following three types of
fertilizer at the prices shown.
Choice #1 - 18-0-0 at $
90.00 per ton.
Choice #2 - 15-0-0 at
$85.00 per ton.
Choice #3 - 33-0-0 at
$275.00 per ton.
Which fertilizer should be selected as the cheapest source of
nitrogen? a. | #
1 | c. | #
3 | b. | #
2 | d. | All are the same
cost | | | | |
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| 53. | If Tom
borrowed $6,000 from the local bank to purchase his tractor at 15% interest (on the unpaid balance)
and agreed to make annual payments for 3 years (equal principle payments), how much total interest
would he pay? a. | $180.00 | c. | $150.00 | b. | $1800.00 | d. | $1500.00 | | | | |
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| 54. | If an item
is regularly priced $42, but is marked 35% off, what is the total price after 6% sales tax is
added? a. | $31.96 | c. | $28.32 | b. | $28.94 | d. | $22.65 | | | | |
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| 55. | Amy has
5,000 ten-inch hanging baskets to fill with soil to grow ferns this spring. How much will her
per-unit cost of soil be if each bag of soil costs $14 and each bag will fill 35 ten-inch
baskets? a. | $.99 | c. | $0.40 | b. | $.16 | d. | $2.50 | | | | |
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Income
Statement Analysis, Problems 56 - 59:
Use the following information to answer questions 56 -
59.
Soybean
sales $53,000
Coastal bermuda hay sales
3,500
Building
depreciation 8,800
Increase in inventory of livestock
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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| 56. | 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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| 57. | What is the
net cash farm income for this business? a. | $61,700 | c. | $82,500 | b. | $65,500 | d. | $86,500 | | | | |
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| 58. | If this
producer calculates his taxable income using the cash method of accounting, what will his taxable
income be? a. | $44,700 | c. | $97,700 | b. | $65,700 | d. | $118,700 | | | | |
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| 59. | 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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Balance
Sheet Analysis, Problems 60 - 63.
Use the following information to answer questions 60 -
63.
Cash and checking
account balance $13,500
Mortgage on
land 220,000
Value of
machinery 50,000
Value of land 250,000
Value of feeder livestock
20,000
Loan at bank (due in 90
days) 90,000
Loan on machinery 20,000
Value of grain in storage
15,000
Interest due
and payable 3,000
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| 60. | This
producer has assets with a total value of ___________. a. | $88,500 | c. | $203,500 | b. | $103,500 | d. | $348,500 | | | | |
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| 61. | This
producer has a net worth of ____________. a. | $102,500 | c. | $118,500 | b. | $15,500 | d. | $235,500 | | | | |
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| 62. | What is the
producer's equity ratio? (Also known as Debt-to-Net Worth) (Total Liabilities divided by Net
worth)
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| 63. | Which of the
following statements is true of this producer's situation ? a. | This producer owes more
than his equity in the farm. | b. | A lender will probably not lend money to this
producer. | c. | This producer's debt equity ratio is unsafe for the producer and the
lender. | d. | All of the above statements are true. | | |
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| 64. | What will be
the cost of materials for this fence? a. | $85.70 | c. | $130.70 | b. | $128.90 | d. | $123.50 | | | | |
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Use the
following data for problems 64-69.
Renee has a fence building business for her SAE project. Help
her determine costs and profit for this job.
- a 120 foot wire fence is to be installed
- a crew of four completes the job from 2:30pm until 6:00pm
- line posts are spaced 8 ft. apart and cost $1.80 each
- 4 brace posts are needed at a cost of $1.80 each
- 2 corner posts are needed at a cost of $3.25 each
- this special wire comes in 66 ft. rolls and costs $45 per roll
- Renee pays her workers $5.50 per hour
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| 65. | Renee
charges $12 per man-hour for labor to install fencing. What would be the total for labor that
she would charge the customer for this job? a. | $42 | c. | $19.25 | b. | $504 | d. | $168 | | | | |
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| 66. | Renee pays
$5.50 per hour to her workers. Why does she charge $12 per hour to the
customer? a. | to cover her fixed
costs and overhead expenses | b. | because she wants to make the extra $6.50 in
profit | c. | because she is greedy | d. | all the
above | | |
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| 67. | Renee adds
20% to the cost of labor and materials for her profit. What will be the total bill for this
fence? a. | $356.28 | c. | $349.80 | b. | $328.57 | d. | $320.65 | | | | |
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| 68. | What is the
cost per foot of this fence to the customer? a. | $1.50 | c. | $3.29 | b. | $2.67 | d. | $2.97 | | | | |
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| 69. | What is
Renee's profit or (loss) on this job? a. | $58.30 | c. | $120.87 | b. | $59.38 | d. | $399.47 | | | | |
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Data for
questions 70-72.
Partial Budgeting:
Jeff has grown soybeans
for several years but corn prices seem to be going up and he is contemplating a change. Help
Jeff decide whether he should produce corn or soybeans. The following costs are the only
differences in the cost of producing corn and soybeans.
- 325 acres to be planted
- projected corn price
per bushel = $3.00
- estimated corn yield = 97 bushels per
acre
- projected soybean price per bushel = $6.15
- projected soybean
yield = 35 bushels per acre
- cost of fertilizer per acre for soybeans =
$40
- cost of fertilizer per acre for corn = $65
- cost of fuel is $45
per acre for soybeans
- cost of fuel is $40 per acre for corn
- chemical cost is $55
per acre for soybeans
- chemical cost is $20 per acre for corn
Additional cost
Additional Returns
Reduced
Returns
Reduced Cost
Total reduced income =
additional costs Total added income =
additional
& reduced returns__________________.
returns & reduced costs________
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| 70. | What would
be the change in net income for Jeff if he grew corn instead of soybeans? a. | +
$29,493.75 | c. | +
$373.75 | b. | + $1500.34 | d. | - $5859.34 | | | | |
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| 71. | What will be
Jeff's gross returns with the proposed change? a. | $83,791.00 | c. | $28,000.75 | b. | $58,590.34 | d. | $94,575.00 | | | | |
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| 72. | If other
costs (other than those listed above) for producing soybeans or corn is $55 per acre, what is the
projected profit if corn is grown? a. | $36,075 | c. | $1274 | b. | $56,000 | d. | $86,700 | | | | |
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| 73. | Michael had
34,000 hanging baskets to grow on contract for a large chain store. After an hour of
negotiating, he got the buyer for the store to agree to a five cent per basket price increase.
Michael's friend, who had heard the conversation, said, "Why would you waste an hour haggling
over 5 cents?" Simple he said, "That five cents equates to _________ profit on the
crop." a. | $17.00 | c. | $750.50 | b. | $1700.00 | d. | $1395.5 | | | | |
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Data for
questions 74-75
Cash flow project for Athens Catfish Farm,
1991-1992
CASH INCOME |
Jan-March |
April-June |
July-Sept. |
Oct.-Dec. |
Jan-Mar. '92 |
Sales |
0 |
1200 |
1400 |
1400 |
1400 |
CASH EXPENSES |
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Fingerlings |
300 |
300 |
300 |
300 |
300 |
Hired Labor |
100 |
100 |
100 |
100 |
100 |
Fixed Cost |
300 |
300 |
300 |
300 |
300 |
Fish Feed & Medicine |
400 |
550 |
550 |
550 |
550 |
TOTAL CASH OUTFLOW |
1100 |
1250 |
1250 |
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CASH SURPLUS OR DEFICIT |
-1100 |
-50 |
+150 |
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OPERATING LOAN BALANCE
($0.00
1/1/91) |
1100 |
1150 |
1000 |
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ENDING CASH BALANCE |
0 |
0 |
0 |
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| 74. | What amount
of money will need to be borrowed to operate this farm for one year?
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| 75. | According to
this projection, what will be the operating loan balance at the end of March 1992?
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