Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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| 1. | Capital
gains is ... a. | gain from the sale of
commodities produced, services rendered, etc. | b. | ordinary costs
associated with capital items. | c. | the gain or loss from the sale of capital
assets. | d. | capital items that are normally used up during a production
cycle. | | |
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| 2. | What is
another term used to describe a net worth statement ? a. | income
statement | c. | enterprise
statement | b. | balance sheet | d. | none of the above | | | | |
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| 3. | One example
of a current asset is (a)
. a. | mortgage | c. | buildings | b. | machinery | d. | cash on hand | | | | |
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| 4. | Long-term
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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| 5. | Which of the
following statements is correct about the law of supply ? a. | High price = less
product supplied. | c. | High price = more
product demanded. | b. | Low price = more product supplied. | d. | High price = more product supplied. | | | | |
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| 6. | A business
is said to be solvent if total ... a. | assets exceed total liabilities. | c. | liabilities exceed total assets. | b. | capital assets exceed
capital liabilities. | d. | current assets exceed
current liabilities | | | | |
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| 7. | A budget for
soybeans would be termed ... a. | a supply budget. | c. | an enterprise budget. | b. | a partial
budget | d. | a supply and demand
curve evaluation | | | | |
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| 8. | A budget to
determine if holding hogs to a heavier weight would be profitable is termed
a(n)
budget. a. | whole
farm | c. | partial | b. | enterprise | d. | none of the above | | | | |
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| 9. | A budget
predicts: a. | prices. | c. | income and
expense. | b. | net worth | d. | inventory values | | | | |
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| 10. | In the short
run, if variable costs cannot be covered ... a. | then the product should not be produced. | b. | fixed assets should be
sold. | c. | the production level should be cut in half. | d. | the fixed costs should
not be paid. | | |
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| 11. | To the
untrained eye, workers at businesses such as the telephone company and the post office may not appear
to be moving when actually they are just very slow workers. Slow service is often blamed on the
situation of those businesses, where workers have no incentive to do a good job. a. | perfectly competitive
market | c. | oligopolistic
market | b. | marginal market | d. | monopoly market | | | | |
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| 12. | A market
where there are a few large firms that control the market is called a(n) ... a. | cooperative. | c. | oligopoly | b. | corporation. | d. | convent. | | | | |
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| 13. | 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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| 14. | 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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| 15. | 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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| 16. | All of the
following are said to be inelastic with regard to demand except ... a. | oil. | c. | beef | b. | salt. | d. | gasoline | | | | |
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| 17. | Suzie signed
a contract to sell her soybeans locally to a feed dealer. The best term for this transaction is
... a. | hedging. | c. | futures. | b. | speculating. | d. | forward contracting. | | | | |
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| 18. | James made
$20,518 profit on his operation last year. His capital investment was $204,545. What was his rate of
return to capital invested?
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| 19. | Select the
item that is NOT deductible on Federal Income Tax returns. a. | Depreciation | c. | Feed
costs | b. | Fertilizer costs | d. | Principle payments on loans. | | | | |
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| 20. | Items that
are most marketable and are readily converted into cash without loss. a. | current
assets. | c. | intermediate for
working liabilities. | b. | intermediate or working assets. | d. | fixed or long term assets. | | | | |
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| 21. | A decline in
value of an asset over its useful life associated with use, age and obsolescence is known as
... a. | appreciation | c. | inventory. | b. | depreciation. | d. | hedging | | | | |
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| 22. | Which of the
following could be used as collateral? a. | livestock | c. | automobiles | b. | land | d. | all the above | | | | |
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| 23. | James
co-signed on a loan with his neighbor so that his neighbor could borrow money for a new pick-up. The
banker told James and his neighbor that "you are collectively and individually responsible for
the loan payment." That means that ... a. | James may have to pay half the amount if his neighbor
defaults. | b. | James will have to pay all the note if his neighbor
defaults. | c. | James will receive one-half of the money and in return must make
one-half of the payment. | d. | none of the above. | | |
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| 24. | By
diversifying crop enterprises rather than specializing in one major crop, a producer will
... a. | reduce risk and
uncertainty. | b. | decrease annual labor efficiency. | c. | facilitate the use of
more labor-saving equipment. | d. | concentrate production knowledge. | | |
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| 25. | The purpose
of insurance is to ... a. | reduce risk and uncertainty. | c. | facilitate safety. | b. | provide benefits to
attract employees. | d. | provide for
retirement. | | | | |
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| 26. | A nonprofit
business organization that is owned and controlled by the members for the mutual benefit of the
members is called a ... a. | sole proprietorship. | c. | corporation. | b. | partnership. | d. | cooperative. | | | | |
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| 27. | The producer
who uses forward contracts or hedges is ... a. | trying to eliminate yield uncertainty. | c. | trying to eliminate price uncertainty. | b. | speculating. | d. | usually does so because
of ignorance. | | | | |
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| 28. | The unpaid
interest (at any time) that would be payable if the loan principal was due. a. | accrued
interest | c. | discounted
interest | b. | add-on-interest | d. | interest rate | | | | |
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| 29. | A physical
account of all assets in a business is called a(n) ... a. | net worth
statement. | c. | enterprise
analysis. | b. | inventory. | d. | budget. | | | | |
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| 30. | The money
spent to do business. It does not vary with the level of production in the short
run. a. | variable
cost | c. | fixed
cost | b. | marginal
cost | d. | cash
expense | | | | |
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| 31. | A grower
asks your assistance in marketing alternatives for his corn crop. He could currently sell the corn
for $2.50 per bushel. He believes that in 4 months the price will be $2.60. If he sold the corn now,
he could invest the money at 11 percent interest. He is paying 1.5 cents per month per bushel for
storage. What should he do? a. | sell four months from now. | c. | sell now. | b. | build on farm storage facilities. | d. | sell a futures contract. | | | | |
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| 32. | A measurable
point where an increase in the addition of a variable cost item decreases the actual output of an
enterprise. a. | budget | c. | diminishing
returns | b. | cash Row statement | d. | opportunity cost | | | | |
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| 33. | Which of the
following net capital ratios would indicate the greatest degree of solvency? (Total Assets/Total
Liabilities)
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| 34. | A net worth
statement shows the financial condition of a business at a definite point in time. It is also known
by several other names. Which of the following is NOT one of the names a net worth statement is known
as? a. | balance
sheet | c. | financial
statement | b. | cash flow statement | d. | statement of financial condition | | | | |
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| 35. | What type of
insurance protects the farmer from lawsuits if he/she causes personal injury or property damage to
another person? a. | life
insurance | c. | accident and health
insurance | b. | property insurance | d. | liability insurance | | | | |
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| 36. | As an
incentive to investors, some of the capital invested in agriculture can be recovered quickly by
claiming a(n)
on their tax return. a. | investment credit | c. | standard deduction | b. | capital
gains | d. | personal
exemption | | | | |
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| 37. | The document
which is used to study the growth of a farm over time is a(n) ... a. | balance sheet (net
worth statement). | c. | cash flow
statement. | b. | income statement. | d. | inventory statement. | | | | |
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| 38. | A historical
record of monthly cash inflows and outflows for a farm/ranch for a specified period of time, usually
a year, is referred to as a(n) ... a. | cash flow summary. | c. | net worth statement. | b. | income
statement. | d. | enterprise
analysis. | | | | |
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| 39. | Which of the
following is (are) NOT deductible as farm expenses on federal tax returns ? a. | federal
taxes | c. | hobbies | b. | state taxes | d. | all of the above | | | | |
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| 40. | . Which of
the following is (are) an intermediate asset? a. | feeder pigs | c. | tractor | b. | land | d. | all of the above | | | | |
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| 41. | Which of the
following is NOT a current liability? a. | principle payment due in 12 months | c. | taxes | b. | 10 year equipment loan | d. | interest | | | | |
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| 42. | Which of the
following current ratios would indicate the highest degree of solvency? (Current Assets/Current
Liabilities) a. | .75:1 | c. | 3.23:1 | b. | 1:1 | d. | 4.56:1 | | | | |
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| 43. | Which of the
following debt-equity ratios would indicate the highest degree of solvency? (Total Liabilities/Net
Worth) a. | .75:1 | c. | 3.23:1 | b. | 1:1 | d. | 4.56:1 | | | | |
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| 44. | What are the
four (4) parts of production? a. | assets, income, expenses, profit | b. | Iivestock, crops,
investments, off-farm income | c. | management, land, labor, capital | d. | land, labor, capital,
expenses | | |
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| 45. | Which of the
following is NOT a type of budget used by farmers and ranchers? a. | enterprise
budget | c. | sample
budget | b. | partial budget | d. | whole farm budget | | | | |
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| 46. | Budgeting
serves as a guide in ... a. | developing a logical procedure to carry out a chosen course of
action. | b. | decision making. | c. | providing comparisons
of alternative courses of action. | d. | all of the above | | |
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| 47. | The
coordination of activities that are involved with the moving of a commodity from the producer to the
ultimate consumer is referred to as ... a. | current value. | c. | liquidity. | b. | income averaging. | d. | marketing. | | | | |
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| 48. | Most farm
businesses in the U.S. with sales over $25,000 per year are ... a. | estates and
trusts. | c. | incorporated. | b. | sole proprietorships. | d. | partnerships. | | | | |
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| 49. | Producers
can diversify or specialize in producing products. When producers specialize in an enterprise they
are, generally, ... a. | increasing efficiency in the enterprise. | b. | reducing price risks of
their products. | c. | distributing labor requirements over the
year. | d. | creating excess production in the market. | | |
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| 50. | The income
that could have been received if the input had been used in its most profitable alternative use is
called ... a. | alternative
income. | c. | net
profit. | b. | marginal revenue. | d. | opportunity cost. | | | | |
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Income
Statement Analysis. Problems 51 - 55:
Cotton
sales $72,000
Coastal Bermuda hay sales
1,500
Building depreciation
3,800
Increase in
inventory of livestock 1,000
Feeder calf sales 22,000
Total farm cash operating expenses
66,000
Machinery depreciation
8,000
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| 51. | What is the
gross cash farm income for this business? a. | $95,500 | c. | $72,000 | b. | $73,500 | d. | $94,000 | | | | |
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| 52. | What is the
net cash farm income for this business? a. | $7,700 | c. | $29,500 | b. | $27,500 | d. | $16,500 | | | | |
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| 53. | What is the
change in inventory for this operation? a. | $1,500 | c. | $1,000 | b. | $3,800 | d. | $8,000 | | | | |
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| 54. | If this
producer calculates his taxable income using the cash method of accounting, what will his taxable
income be ? a. | $17,700 | c. | $29,700 | b. | $29,500 | d. | $95,500 | | | | |
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| 55. | If this
producer calculates his taxable income using the accrual method of accounting, what will his taxable
income be ? a. | $18,700 | c. | $29,500 | b. | $17,700 | d. | $33,500 | | | | |
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Balance
sheet Analysis, Problems 56-58:
Cash and checking
account balance $0
Mortgage on land 10,000
Value of machinery 5,000
Value of land 20,000
Loan at bank (due in 90 days)
1,000
Loan on machinery
2,000
Value of grain in storage
5,000
Interest due and
payable 1,000
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| 56. | This
producer has assets with a total value of
. a. | $31,000 | c. | $20,000 | b. | $25,000 | d. | $30,000 | | | | |
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| 57. | This
producer has a net worth of
. a. | $10,500 | c. | $16,000 | b. | $15,000 | d. | $23,500 | | | | |
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| 58. | What is the
producer's equity ratio ? (Also known as Debt-to-Net Worth) (Total Liabilities divided by Net
worth) a. | .875 | c. | 2.854 | b. | 1.412 | d. | 21.483 | | | | |
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| 59. | James had
ninety, 230 pound hogs to sell. He called two buyers. Market B offered $0.015 more that
Market A. He decided to take his hogs to Market A since the price was only 1.5 cents less per
pound and 5 miles closer. Taking them to the closer market would allow him more time for deer
hunting that afternoon. How much more would he have received if he had gotten the higher price
(1.5 cents) at Market B. a. | $17.00 | c. | $3,105.50 | b. | $31.05 | d. | $310.50 | | | | |
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| 60. | Using the
data in problem 59, if transportation for the hogs costs $1 per mile, what would have been the net
increase if James had taken the hogs to market B? a. | $12.00 | c. | $300.50 | b. | $26.05 | d. | $305.50 | | | | |
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Data for
questions 61 and 62
Cash flow project for
Athens Fish Farm, 1992-1993
CASH INCOME Jan-March
April-June July-Sept.
Oct.-Dec.
Jan-Mar.'93
Sales 0
0
1000
2400
6400
CASH
EXPENSES
Fingerlings
300
0
300
300
300
Hired
Labor
100
100 100
100
100
Fixed
Cost
300
300 300
300
300
Fish Feed &
Medicine 400
550 750
1550
1550
TOTAL CASH
OUTFLOW1100
950
1,450
2,250
2,250
CASH SURPLUS
OR
-1100 -2,050
-450
150
4,150
DEFICIT
OPERATING LOAN
1100 2,050
2,500
2,350
BALANCE
($0.00
1/1/92)
ENDING CASH
BALANCE
0
0
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| 61. | What is the
maximum amount that will need to be borrowed to operate this farm during 1992 ? a. | $8000 | c. | $4150 | b. | $2350 | d. | $2500 | | | | |
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| 62. | What is the
projected net profit for this farm from January 1992 through March 1993? a. | $4150 | c. | $1800 | b. | $2350 | d. | $0 | | | | |
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WHITE FARM
200 Head Stocker
Budget, costs per head
Buy Oct 15 - Sell April
15:
Steers- 380 pounds in - 686 pounds
out
Operating Inputs:
Units
Price Quantity
Value
Steer
Calves
CWT. $88.000
3.874 $340.91
Corn Silage
Tons
22.000 3.022
66.48
Prairie Hay
Tons
35.000 0.150 5.25
Soybean Oil Meal
Lbs. 0.140
188.000 26.32
Salt and Minerals
Lbs. 0.090
19.000 1.71
Trucking
HD 2.700
1.000 2.70
Sales Commission
HD 4350
1.000 4.35
Vet Medicine
HD 4.500
1.000 4.50
Utilities
HD 0.350
4.000 1.40
Annual Operating Capital
DOL 0.118
201.821 23.81
Machinery Labor
. HR 4.500
1.260 5.67
Equipment Labor
HR 4.500
1.130 5.08
Livestock Labor
HR 4.500
1.350 6.07
Machinery Fuel,
Lube,
Repairs
DOL
7.44
Equipment Fuel, Lube,
Repairs
DOL
2.27
Total Operating
Cost
$503.96
Fixed Costs:
Amount Value
Machinery
Interest at
11.80%
12.08 1.43
Depr., Taxes, Insurance
2.50
Equipment
Interest at
11.80%
45.12 5.32
Depr., Taxes, Insurance
8.29
Livestock, Horse
Interest at
11.80%
3.40 0.40
Depr., Taxes,
Insurance
0.15
Land
Taxes
.96
Total Fixed Costs
$19.05
Production:
Units Price
Quantity Value
Steers (600-700 pounds)
CWT 79.50 6.860
$545.37
Returns Above Total Operating Costs
$41.41
Returns Above All Costs Except Overhead, Risk, and
Management. $22.36
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| 63. | Mr. White
normally sells his stockers in April. He is considering holding 200 head until July when they are
projected to weigh 1000 pounds. He would like your assistance in making his
decision.
63. Based on the budget provided, what
is the total cost per head as of April 15? a. | $19.05 | c. | $523.01 | b. | $503.96 | d. | $545.37 | | | | |
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| 64. | If Mr. White
sells his 200 head of steers on April 15, based on the budget information, what will his total
returns above all costs be? a. | $545 | c. | $8,282 | b. | $4,472 | d. | $109,074 | | | | |
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| 65. | 65. If the purchase price of the steer calves went up to
$98 per hundred weight (COOT) and the other expenses and income were unchanged, what would the return
be (based on the expenses given)? a. | -$38.74 | c. | + $2.67 | b. | -$16.38 | d. | +$12.36 | | | | |
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| 66. | Mr. White
projects an additional cost of $150 per head from April 15 to July. The total cost per head
from October 15 to July will be
. a. | $653.96 | c. | $695.37 | b. | $673.01 | d. | $30,000 | | | | |
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| 67. | If Mr. White
chooses to hold the 200 steers and market them in July, what price per cwt. must he receive to
breakeven? a. | $67.30 | c. | $52.30 | b. | $65.40 | d. | $50.40 | | | | |
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| 68. | The local
packing plant knows Mr. White and will guarantee him $72 per cwt. in July. What will his total profit
per head be if he sells in July at the $72 price? a. | -$127.64 | c. | + $41.41 | b. | + $22.36 | d. | +$46.99 | | | | |
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ALTERNATIVES
The American consumer has become very health and diet
conscious recently. Emphasis on low cholesterol foods has Heated a demand for oat bran food products.
Consequently, there is increased demand for milling quality oats. Mr. White believes this increased
demand for oats will offer him a market for certified oat seed in the years to come. He is
considering raising 100 acres of oats to sell as certified seed, bagged and tagged in the same manner
as he does his soybeans. He has gathered the following production cost and yield information in order
to prepare a partial budget to help him make a decision as to whether he should raise oats or
not.
Costs
Soybeans Oats
Variable costs to produce
one acre (seed, fort,
chem,
crop ins., other)
$82.85 $79.00
Machinery ownership and
operation per
acre
$41.21 $44.60
Yield per acre of
certified
seed 38
bu. 85 bu.
Expected price per bushel
of certified
seed
$7.25/bu. $2.15/bu.
Net cash value of straw
per
acre $0
$15.00
Total acres of
crop
usually grown
773 ac. 0 ac.
The following questions are based on the assumption to grow 100 acres
of oats and reduce soybean acreage by 100 acres.
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| 69. | What are the
total additional costs to raise 100 acres of oats? a. | $12,360 | c. | $4,460 | b. | $7,900 | d. | $123.60 | | | | |
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| 70. | What are the
total additional returns associated with raising 100 acres of oats? a. | $1,500 | c. | $19,775 | b. | $18,275 | d. | $182.75 | | | | |
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| 71. | If Mr. White
reduces his soybean acreage by 100 acres how much will his gross returns for soybeans be reduced
? a. | $275.50 | c. | $725.00 | b. | $27,550 | d. | $5604.25 | | | | |
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| 72. | By reducing
his soybean acreage Mr. White also reduces his total costs for soybean production. How much
would Mr. White reduce his costs for soybean production if he planted 100 fewer
acres? a. | $0 | c. | $8,285 | b. | $4,121 | d. | $12,406 | | | | |
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| 73. | Based on the
budget information if Mr. White were to decrease his soybean acreage by 100 acres and add 100 acres
of oats, he could anticipate a change in net farm income of
? a. | -$9,229 | c. | +
$7,729 | b. | -$7,729 | d. | + $9,229 | | | | |
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| 74. | Based on
your evaluation of the information, which of the following alternatives should
you
recommend to Mr. White? a. | raise 773 acres of oats and no soybeans | b. | raise 100 acres of oats
and 673 acres of soybeans | c. | raise 773 acres of soybeans and no oats | d. | raise 673 acres of oats
and 100 acres of soybeans | | |
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| 75. | 75. Suppose corn produces 80 bushels per acre and has a
production cost of $140 per acre. Current market prices are $2.50 per bushel for corn and $6.00 per
bushel for soybeans. Soybeans can be raised at a cost of $150 per acre. At what breakeven yield per
acre would soybeans generate the same net return per acre as corn? a. | 10
bushels. | c. | 31
bushels. | b. | 25 bushels. | d. | 35 bushels. | | | | |
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