Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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| 1. | The science and art of the organization and operation of farms so as to obtain the
maximum amount of continuous net income is the definition for
? a. | capital
budgeting | c. | sole
proprietorship | b. | farm
management | d. | whole farm
analysis | | | | |
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| 2. | The three R's (Risk, Returns, and Repayment) are frequently evaluated to determine a
farmer's: a. | Credit worthiness | c. | Retirement goals | b. | Management
ability | d. | Yield
goals | | | | |
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| 3. | If a tractor's use is increased from 350 to 500 acres per year its: a. | Total variable cost
will decline. | c. | Average fixed cost per
acre will decline. | b. | Variable cost per acre
will decline. | d. | Total fixed cost will
decline. | | | | |
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| 4. | Which of the following gives the best measure of financial progress over a period of
years? a. | Capital investment | c. | Net cost
income | b. | Income taxes
paid | d. | Net worth
statement | | | | |
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| 5. | Purchase of a call option on corn means: a. | The buyer is required
to sell a corn futures contract at a set price. | b. | The buyer may, but is
not required to, sell a corn futures contract at a set price. | c. | The buyer may, but is
not required to, buy a corn futures contract at a set price. | d. | The buyer is required
to buy a corn futures contract at a set price | | |
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| 6. | A written agreement by which an owner of property transfers the title to someone to
manage and safeguard for the benefit of beneficiaries is a... a. | trust. | c. | corporation. | b. | partnership. | d. | quit claim
deed | | | | |
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| 7. | 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 the
same. | d. | Increase or decrease depending on the amount of the demand
decrease | | |
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| 8. | An advantage of a farm business structured as a corporation is: a. | Limited capital
required to form a profitable business. | b. | Simplification and ease
of management. | c. | Exempt from Federal
income tax. | d. | Avoidance of personal
liability | | |
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| 9. |
If wheat and corn are
common substitutes as an input into livestock feed, then an increase in the market price for corn is
expected to: a. | Increase the demand for wheat | c. | Create an excess demand
for corn. | b. | Increase the demand for
corn. | d. | Decrease the quantity
of corn supplied. | | | | |
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| 10. | Liability of a general partner in a partnership is limited to: a. | All debts and
obligations of partnership up to the amount of investment in the
partnership. | b. | Maximum of 50% of
obligations of the partnership. | c. | All debts and
obligations of the partnership. | d. | All debts and obligations of the partnership up to the amount of the
share of the assets in the partnership | | |
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| 11. | 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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| 12. | A business organization that is structured as a corporation that qualifies for all
purposes except taxation is called a(n)... a. | Cooperative | c. | Oligopoly | b. | Monopoly | d. | S Corporation | | | | |
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| 13. | The coordination of activities that are involved with the buying or selling of a
product is called... a. | marketing | c. | hedging | b. | farming | d. | theoretical
capacity | | | | |
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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. | Debit | b. | Deed | d. | Dividend | | | | |
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| 15. | What type of insurance protects the farmer from lawsuits if they cause 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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| 16. | Ellen made $18,419 profit on her operation last year. Her capital investment was
$204,550. What was her rate of return to capital invested?
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| 17. | A measurable point where an increase in the addition of a variable cost item decreases
the actual output of an enterprise. a. | Budget | c. | Marginal
cost | b. | Diminishing returns | d. | Marginal returns | | | | |
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| 18. | In order to manage taxes it is necessary to adopt an accounting method that best suits
your situation. The method which reports income and expenses by keeping track of inventory
levels is called the... a. | balance sheet
method. | c. | accrual
method. | b. | capitalization
method. | d. | cash
method. | | | | |
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| 19. | Which of the following net capital ratios would indicate the greatest degree of
solvency? (Total Assets/Total Liabilities)
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| 20. | Select the item that is NOT deductible on Federal Income Tax returns. a. | Cash
Rent | c. | Hired
labor | b. | Fuel and
Oil | d. | Principle paid on
debt. | | | | |
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| 21. | 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 9 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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| 22. | Long term, or fixed, assets include... a. | breeding
livestock. | c. | mortgage on real
estate. | b. | buildings. | d. | machinery | | | | |
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| 23. | What is another term used to describe a balance sheet? a. | Enterprise
statement | c. | Net present
value | b. | Income
statement | d. | Net worth
statement | | | | |
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| 24. | A statement of projected costs and returns associated with some change in the normal
operation of the business is called a(n)... a. | partial
budget. | c. | enterprise
budget. | b. | operating
budget. | d. | whole farm
budget | | | | |
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| 25. | One example of a fixed cost is... a. | depreciation. | c. | fertilizer
costs. | b. | feed
costs. | d. | tractor operating
expenses | | | | |
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| 26. | Corn yields 90 bushels per acre and has a production cost of $140 per acre.
Current market prices are $2.50 per bushel for corn and $5.20 per bushel for soybeans. Soybeans
can be raised at a production cost of $110 per acre. At what breakeven yield per acre would
soybeans generate the same net return per acre as corn? a. | 25
bushels | c. | 37 1/2
bushels | b. | 32 1/2
bushels | d. | 39
bushels | | | | |
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| 27. | If the government allowed no immigration to this country and controlled illegal
immigration, the effect on agriculture would probably be... a. | a shortage of
agricultural labor. | b. | an increase in the
hourly wage for agricultural workers. | c. | an increase in the
total cost of labor. | d. | all of the
above. | | |
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| 28. | The purpose of insurance is to... a. | facilitate
safety. | c. | provide for
retirement. | b. | provide benefits to
attract employees. | d. | reduce risk and
uncertainty. | | | | |
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| 29. | In theory, how do grain reserves stabilize prices? a. | By reducing the
quantity of grain available in the trade. | b. | By insuring grain gets
to where hungry people are. | c. | By releasing supplies
in short production years and absorbing supplies in big production years. | d. | By setting price
support levels | | |
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| 30. | The difference between total assets minus total liabilities is... a. | gross
sales. | c. | net
profit. | b. | net
worth. | d. | capital
gain. | | | | |
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| 31. | A farmer would like to determine the amount of feed fed to his cows and calves last
year. The following data was computed:
Beginning feed inventory ---------------
$14,500
Feed purchased during the year
------ $17,000
Feed sold during the
year -------------- $13,000
Feed produced during the year -------
$27,000
Ending feed inventory
------------------ $14,000
What is the value of
the feed fed? a. | $10,500 | c. | $45,000 | b. | $31,500 | d. | $59,500 | | | | |
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| 32. | The price of a commodity is basically determined by the ... a. | impact of advertising
campaigns. | c. | costs of
production. | b. | world food
situation. | d. | supply and demand for
the product. | | | | |
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| 33. | Current assets minus current liabilities is... a. | net
worth. | c. | profit. | b. | variable
input. | d. | working
capital | | | | |
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| 34. | The difference between the price of a commodity in the nearby future's market and the
local cash price is called... a. | spread. | c. | basis. | b. | margin. | d. | profit. | | | | |
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| 35. | A decline in value of an asset over its useful life associated with use, age and
obsolescence is known as... a. | depreciation. | c. | inventory. | b. | appreciation. | d. | common law. | | | | |
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| 36. | A farmer would like to determine her liquidity. She has the following
data: Current assets equal $178,000 and current liabilities equal $60,000. Her current
ratio would equal... a. | .33:1 | c. | 33:1 | b. | 2.97:1 | d. | 1.97:1 | | | | |
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| 37. | A written statement that the seller of property gives to the buyer that gives up only
the seller's right to the property but does not imply the property is free from legal claims by
outside parties is called a(n)... a. | lien. | c. | quit claim deed. | b. | deed. | d. | warranty
deed. | | | | |
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| 38. | If the government were to set the price of 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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| 39. | 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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| 40. | The demand curve shows the relationship between... a. | consumer tastes and the
quantity demanded. | b. | price and the quantity
demanded. | c. | price and production
costs. | d. | money income and
quantity demanded. | | |
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| 41. | Suppose a producer discovers insects in his cotton crop and decides to use an
insecticide to save the crop. A bank will loan him $2000 at 9.75 percent interest until he
sells his crop 9 months later. At that time he must repay the loan. How much will he pay
in interest if simple interest is computed? a. | $16.25 | c. | $195.00 | b. | $146.25 | d. | $2195.00 | | | | |
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| 42. | The rate of return on investment for a farm business is found by... a. | dividing total assets
value by total liabilities. | b. | subtracting total
liabilities from total asset value. | c. | dividing return to
capital by total asset value. | d. | dividing return to
equity by net worth. | | |
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| 43. | 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 through 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. | stupidity | b. | term
liability | d. | negligence | | | | |
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| 44. | 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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| 45. | 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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| 46. | 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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| 47. | Hedging is... a. | a form of
speculation. | b. | a strategy that
decreases price risk through futures market transactions. | c. | a way of buying pork
bellies. | d. | trying to guess what your product will sell
for. | | |
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| 48. | 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 more or less
profit depending on the degree and direction of a price change. | d. | make almost exactly
what he predicted no matter how low or how high the price goes. | | |
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| 49. | Which items are most readily converted into cash without loss? a. | Current
assets. | c. | Long term
assets. | b. | Intermediate or working
assets. | d. | All of the
above. | | | | |
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| 50. | At the beginning of last year, you had an outstanding loan for $90,000. The loan
carries an interest rate of 12% annual percentage rate. You make one loan payment at the end of
the year for $25,400. What is the outstanding balance at the beginning of this
year? a. | $55,000 | c. | $75,400 | b. | $64,600 | d. | $79,200 | | | | |
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Net Worth Statements: Questions 51 - 55 refer to the net worth
statements found on page 12 in the Resource Information Section.
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| 51. | What was the reason for the increase in total liabilities for 1989? a. | Decrease in total
current assets. | c. | Increase in
intermediate liabilities. | b. | Decrease in total
assets. | d. | Farmer bought
more land | | | | |
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| 52. | The current ratio is equal to the current assets divided by current liabilities.
In which year did the farmer have the most favorable current ratio? a. | 1988 | c. | 1990 | b. | 1989 | d. | All years are
equal | | | | |
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| 53. | The net capital ratio is equal to total assets divided by total liabilities. In
which year did the farm have the least favorable ratio? a. | 1988 | c. | 1990 | b. | 1989 | d. | All years are
equal | | | | |
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| 54. | What was the change in net worth from January 1, 1988 to January 1,
1990? a. | $32,681 | c. | $64,530 | b. | $62,268 | d. | $94,949 | | | | |
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| 55. | What was the percent change in net worth from January 1, 1989 to January 1,
1990. a. | 8.8% | c. | 25.5% | b. | 15.4% | d. | 13.3% | | | | |
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Enterprise Analysis: Questions 56 - 60 refer to the enterprise
analyses for irrigated peanuts found on page 13 in the Resource Information Section.
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| 56. | What was the total peanut production for 1990 if the farmer planted 150
acres? a. | 1.63 tons | c. | 310.5 tons | b. | 244.5
tons | d. | 540.2
tons | | | | |
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| 57. | What price per ton did the farmer receive for the 1991 peanut crop? a. | $2.07 | c. | $540.35 | b. | $239.03 | d. | $1,118.52 | | | | |
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| 58. |
If the farmer provided
all of the labor for both years and did not have to pay the labor If the farmer provided all of the
labor for both years and did not have to pay the labor expense, what would the total expenses for
1990 and 1991 equal? a. | $640.34 and
$548.08 | c. | $403.36 and
$363.99 | b. | $260.91 and $331.41 | d. | $618.77 and $521.62 | | | | |
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| 59. | What was the cost per ton, including labor, to produce the 1991 peanut
crop? a. | $264.77 | c. | $548.08 | b. | $392.85 | d. | $640.34 | | | | |
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| 60. | In 1990 the farmer lost money on his peanut crop. What yield per acre would he
have needed to produce to cover all of his expenses, including the allotment charge, if peanuts had
sold for $500 per ton? a. | 1.28 tons per
acre | c. | 1.80 tons per
acre | b. | 1.63 tons per acre | d. | 20.0 tons per
acre | | | | |
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Cash Flow Statements: Questions 61 - 65 refer to the itemized cash
flow projection found on page 14 in the Resource Information Section.
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| 61. | Which month shows the highest operating receipts? a. | March | c. | September | b. | June | d. | October | | | | |
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| 62. | What is the total cash inflow expected in 1993? a. | $616,689 | c. | $545,562 | b. | $614,289 | d. | $62,542 | | | | |
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| 63. | What is the projected ending cash balance on December 31, 1993? a. | $616,689 | c. | $62,542 | b. | $614,289 | d. | $17,373 | | | | |
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| 64. | What percentage of total cash inflows is projected from the sale of
milk? a. | 17.6% | c. | 57.1% | b. | 56.8% | d. | 77.4% | | | | |
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| 65. | In what month do they plan to sell their corn? a. | They don't plan to sell
any corn | b. | June | c. | October | d. | Cannot determine the
answer from the given information | | |
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Marketing: Use the following information to answer questions 66 -
70.
The quantity of corn produced by the Flanders is in excess of the
amount needed to feed all their livestock. With anticipated yields, over 15,000 bushels of corn
will be available to sell. Use the information provided and your knowledge of commodity
marketing to answer the following questions. Each corn futures contract is 5,000
bushels.
Assume that on May
1:
A put option for
October corn with a strike price of $3.50 per bushel is 20 cents per bushel.
The October basis for corn at the local market is 15
cents.
The current cash price
for corn is $3.25.
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| 66. | If the Flanders chose to purchase the put option for October corn, what is the
purchase price for one option? a. | $1,000 | c. | $17,500 | b. | $3,000 | d. | $52,500 | | | | |
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| 67. | If the Flanders purchase and exercise the option, what is the expected net price to be
received for corn. (NOTE: Assume basis is 15 cents.) a. | $3.50 per
bushel | c. | $3.30 per
bushel | b. | $3.35 per
bushel | d. | $3.15 per
bushel | | | | |
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| 68. | If the Flanders could exercise their option when the basis was only eight cents (a
narrower basis), what would be the expected net price? a. | $3.50 per
bushel | c. | $3.30 per
bushel | b. | $3.42 per
bushel | d. | $3.22 per
bushel | | | | |
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| 69. | If the Flanders anticipate a price decline of five cents per bushel ($3.20) in the
local cash market should they purchase the option? (NOTE: Assume basis is 15
cents.) a. | Yes | c. | Flip a coin to
decide | b. | No | d. | Not enough information
to decide | | | | |
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| 70. | If the Flanders anticipate a price decline of 15 cents per bushel ($3.10) in the local
cash market should they purchase the option? (NOTE: Assume the basis is 15
cents.) a. | Yes | c. | Depends on the price of
corn flakes | b. | No | d. | Not enough information
to decide | | | | |
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The following information is to be used for questions 71 - 72.
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
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| 71. | 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. | 53.0 tons | | | | |
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| 72. | Which fertilizer should be selected as the cheapest source of
nitrogen? a. | 18-0-0 | c. | 33-0-0 | b. | 15-0-0 | d. | All are the same
cost | | | | |
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| 73. | If Nancy borrowed $9,000 from the local bank to purchase her tractor at 12% interest
(on the unpaid balance) and agreed to make annual payments for 3 years (equal principle payments),
how much total interest would she pay? a. | $360 | b. | $1,080 | c. | $2,160 | d. | $3,240 | | |
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| 74. | If an item is regularly priced $65, but is marked 35% off, what is the total price
after 6% sales tax is added? a. | $22.75 | c. | $42.25 | b. | $24.12 | d. | $44.79 | | | | |
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| 75. | Robert has 7,500 ten-inch hanging baskets to fill with soil to grow ferns this
spring. How much will his 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. | $.40 | b. | $.16 | d. | $2.50 | | | | |
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