Farm and Ranch Management Final Exam
T/F: In a year where no captital assets were sold, net farm income from operations would be equal to net farm income
ANswer: True
T/F: The average asset value is found by taking the beginning asset value and the ending asset value and adding them together
Ansswer: False
One certain farm alfalfa yields have been: 4.3, 7.2, 5.6, 3.6, 6.7, 7.2, 5.5, 5.7, 4.8, and 5.4 tons per acre in the last ten years. Assuming past yields are a good indicator of future yields, what is the expected value for the farms alafalfa yield, if each past result is given equal weight? a. 5.0 b. 5.6 c. 6.2 d. 6.5
Answer: 5.6 tons per acre
(T/F) Land is a depreciable asset
Answer: False
T/F Prices or yields that are highly variable over time will have a small standard deviation.
Answer: False
T/F The basic accounting equation is Assets + Liabilities = Owner Equity.
Answer: False
T/F: A corporation is the simplest type of farm/ranch business set up
Answer: False
T/F: An accounting period MUST be from Jan. 1- Dec. 31
Answer: False
T/F: Because weather and prices are unpredictable, it is impossible to plan more than one year in advance.
Answer: False
T/F: Farm and ranch managers can usually set the selling prices for their products.
Answer: False
T/F: Gain or loss from the sale of culled breeding livesock should not be added and included in with the gain or loss from the sale of a capital asset on the income statement
Answer: False
T/F: Market livestock and inventories of stored grain are noncurrent assets on a balance sheet.
Answer: False
T/F: Short run planning is more important than long run planning
Answer: False
T/F: Simple avaerage and weighted average are the same thing
Answer: False
T/F: There is no difference between rate of retrn on assets and return on assets
Answer: False
T/F: To be depricaible, an asset must have an infinite useful life
Answer: False
T/F: Total liabilities cannot be greater than total assets.
Answer: False
T/F: accounting profit is the same as economic profit
Answer: False
T/F: an enterprise budget does not need to be editied or altered as the figures used are usually the exact amount (prices, costs, yields, quantitites) for your farm or ranch.
Answer: False
T/F: only one person can provide management in a sole proprietorship
Answer: False
T/F: the most accruate way to analyze the profitablilty of an investment with a long life is to compute the payback period
Answer: False
T/F: When calculating depreciation under MARCS, the salvage value will always be greater than $100
Answer: False SV= $0
T/F: The typical format of an income statement is revenue, expenses, net farm income, gain/loss on capital assets and then net farm income from operations
Answer: False revenue, expenses, NFIFO, +/- CA, NFI
T/F: Overall, in the United States, the number of farm has been increasing
Answer: False, decreasing
T/F: Given the following information: Total revenue = 406, 548, total expenses (including interest expense) = 361,062, interest expense = 18,071, gain on sale of capital asset = 800, T/F: net farm income from operations = 46,486
Answer: False, net farm income from operations = 45, 486
Estate planning is most concerned with passing on the farm/ranch ___________ to the next generation
Answer: Income
T/F Even farmers with good risk-bearing ability may be risk avoiders
Answer: True
T/F The three major components of a balance sheet are assets, liabilities, and owner's equity.
Answer: True
T/F: AN income statement is also known as a profit and loss statement
Answer: True
T/F: Depriciation is a non cash expense
Answer: True
T/F: Given the following information: Total revenue = 406, 548, total expenses (including interest expense) = 361,062, interest expense = 18,071, gain on sale of capital asset = 800, T/F: net farm income = 46, 286
Answer: True
T/F: Goals should be written, specific, measurable, and have a timetable.
Answer: True
T/F: Good farm records can be useful when applying for a farm loan.
Answer: True
T/F: If fixed costs on an enterprise budget were to increase, the market price needed to break even would increase.
Answer: True
T/F: In agricultural operations, many times the root cause of injury to workers or management is a false sense of urgency and therefore not employing all necessary safe practices in an effort to 'hurry'
Answer: True
T/F: MARCS deprication uses a salvage value of zero
Answer: True
T/F: Producing several enterprises that are not closely correlated with respect to production and prices, can reduce year-to-year net income variability
Answer: True
T/F: Rate of return on assets is an useful measure to compare operations of different sizes
Answer: True
T/F: commodity options essentially allow a producer to pay a premium to establish a minimum or maximum price for a commodity
Answer: True
T/F: for a given total cost, the higher the yield, the lower the break even price
Answer: True
T/F: the debt/asset ratio is a measure of solvency
Answer: True
T/F: weather is an important source of production risk for crop producers
Answer: True
Which of the following is an example of a tactical decision? a. balancing a livestock ration b. forming a partnership with a relative c. joining a feeder pig co-op d. installing an irrigation system
Answer: a. balancing a livestock ration Tactical decisions are short term
$250 in an accounts receivable (for hay you delivered last week to your neighbor) is an example of: a. current asset b. non current asset c. current liability d. non current liability
Answer: a. current asset
The depriciation method with the greatest depriciation in the first year is: a. double declining balance b. 150% declining balance c. straight line d. all of the answers have the same depriciation in the first year
Answer: a. double declining balance
Which type of forward pricing tool cannot be reversed or offset later? a. forward contract with a local elevator b. futures contract c. put option d. call option
Answer: a. forward contract with a local elevator
If a business has working capital greater than $0, its current ratio wil be: a. greater than 1 b. equal to 1 c. less than 1 d. there is no relationship between the amount of working capital and the current ratio
Answer: a. greater than 1
"Doubling the number of acres farmed in 10 years" is an example of a: a. long run goal b. short-term goal c. mission statement d. decision
Answer: a. long-run goal
Momst farmers are more likly to accept a risk if... a. only a small possible loss is involved b. they have high debt to asset ratio c. they have high fixed cash flow obligations d. they are rimarily concered with maintaining their net worth
Answer: a. only a small possible loss is involved
When calculating return to managements, you would subtract out: a. opportunity cost of labor b. opportunity costs of manangment c. interest expense d. average asset value
Answer: a. opportunity cost of labor
On and enterprise budget, fixed costs are often callled _______ a. ownership costs b. operating costs c. prepaid costs d. none of the answers given
Answer: a. ownership costs
Identify the type of risk for the following situation: this years cotton crop is surverly damaged by an early frost a. production risk b. market/price c. financial risk d. personal risk
Answer: a. production risk
Which of the following strategies does not reduce production risk? a. selling grain before harvest by a forward contract b. applying insecticide to a crop c. vaccinating livestock against disease d. keeping a year's supply of extra hay stored
Answer: a. selling grain before harvest by a forward contract
What is the most common form of farm business organization? a. sole proprietorship b. partnership c. LLC
Answer: a. sole proprietorship
At the end of the year, a farmer has an unpaid bill at the local machinery repair shop. It would be shown in an accrual accounting system as a(n) a. accounts receivable b. accounts payable c. accrual expense d. none of the above
Answer: b. accounts payable
Of the following, which is the most liquid asset? a. farm machinery b. balance in checking account c. breeder livestock d. feeder livestock
Answer: b. balance in checking account
Exernal scanning could include asseccing... a. the finicial condition of a business b. changes in customer taste c. the basic returne on investment of new enterprises d. productivity of the farm land
Answer: b. changes in customer taste
If output increases with no chnage in total cost, breakeven selling price will: a. increase b. decrease c. remain consant d. initially decrease and then begin to increase
Answer: b. decrease tc/e(Y)
Identify the type of risk for the following situation: the farm is assesed a fine for not complying with mandated safety practices a. production risk b. legal c. financial risk d. personal risk
Answer: b. legal
Which of the following terms, if used on an enterise budget, would be considered the same as varable costs? a. ownership cost b. operating cost c. overhead cost d. indirect cost
Answer: b. operating cost
An income statement evaluates revenue and expenses for a firm ..... a. at a point in time b. over a period of time c. is not based on a specific time period d. none of the answers given
Answer: b. over a period of time
Which of the following shows the proper sequence of management functions as they would be applied to a specific problem? a. planning, control, implementation b. planning, implimentation, control c. control, planning, implementation d. control, implementation, planning
Answer: b. planning implementation, control
_________________ Insurance protect farm operations in case of the loss of a building from fire or wind a. life. b. property c. liability d. multiple peril crop
Answer: b. property
When "placing a hedge" for a commodity held in storage for a later sale, a farmer a. buys a futures contract b. sells a futures contract c. buys crop insurance d. signs a contract with a local elevator
Answer: b. sells a futures contract
Which type of farm busines entity must file and pay income taxes seperatly fro m the personal tax returns of the owners? a. s corp b. c corp c. LLC d. none of the above
Answer: c corp
WHat is the average asset value for a new feed grinder feeder that costs $15,000 and has an expected salvage value of $3,000 after 8 years? Interest rate is 8%. a. $15,000 b. $8,500 c. $9,000 d. $2,775
Answer: c. $9,000 Because (15,000+3,000)/2=9,000
Which of the following cannot be depriciated using double declining balance: a. ATV b. portable pens c. 45 acres of dryland d. broodmare
Answer: c. 45 acres of dryland
WHich of the following measures of variablility is best for making comparisions amoung different enterprises? a. range b. standard deviation c. Coefficient of variation d. avaerage
Answer: c. Coefficient of variation
The safety-first strategy for choosing among risky alternatives assumes that the farm manager is most concerned with: a. achieving the highest average return over the long run b. achieving the best possible result in a good year c. avoiding the worst possible result in a bad year d. minimizing the chances of not breaking even
Answer: c. avoiding the worst possible result in a bad year
Which of the following is an example of a strategic decision? a. determining fertilizer levels for crops b. deciding when to sell grain c. determining what type of business/legal organization to use d. setting milking times for a dairy
Answer: c. determining what type of business/legal organization to use remember that strategic decisions are long-term
Identify the type of risk for the following situation: the bank notifies you that your operating loan interest rate will increase a. production risk b. market/price risk c. financial risk d. personal risk
Answer: c. financial risk
The main difference between net farm income from operations and net farm income is: a. gain/loss on sale of culled breeding livestock b. interest expense c. gain/loss on sale of capital asset d. there is no difference
Answer: c. gain/loss on sale of capital asset
______________ is the amount paid to a lender for the use of borrowed money a. owners equity b. credit c. interest d. income
Answer: c. interest
A loan on 100 head of angus cows is an classified as: a. current asset b. non current asset c. liability d. none of the aboe
Answer: c. liability
Which of the following is an example of a non-current liability? a. farm machinery b. loan on feeder livestock c. loan on farm machinery d. pre-paid expense
Answer: c. loan on farm machinery
Depriciation is a cost associated with which of the following assets? a. farm land b. nitrogen fertilizer c. machinery storage shed d. stored corn silage
Answer: c. machinery storage shed
To be depriciable, an asset must have an useful life of... a. more than 10 years b. five years or more c. more than one year d. six months or longer
Answer: c. more than one year
The success of hedging as a measure to reduce price risk depends on the fact that cash and futures contracts prices for the same commodity a. move up or down independently of each other b. tend to be abou the same on a given day c. tend to move up or down at the same time d. tend to move in the opposite directions
Answer: c. tend to move up or down at the same time
When using cash accounting, which of the following accounts would never be used? a. grain sales b. depreciation c. fertilizer purchases d. accounts payable
Answer: d. accounts payable
Any item of value is called a(n) a. owners equite b. credit c. profit d. asset
Answer: d. asset
One characteristic that makes decision-making in agriculture different from other types of business is: a. more government regulations b. prevalence of very large business units c. predictability of production processes d. fixed supply of a major resource
Answer: d. fixed supply of a major resource
The best description of a business which has increased its debt/asset ratio is one which has: a. purchased more assets b. sold some assets c. increased its debt d. increased its debt relative to total assets
Answer: d. increased its debt relative to total assets
A lender would usually prefer to have farm assets valued at thier __________________ value on a balance sheet that is part of a loan application: a. cash b. accrual c. cost d. market
Answer: d. market
WHich of the following is an example of a current asset? a. dairy cows b. farm buildings c. faarm machinery d. none of the above
Answer: d. none of the above
Using $20,000 in cash and a new loan of $80,000 to purchase land for $100,000 wll cause equity to... a. increase by $100,000 b. increase by $20,000 c. increase by $80,000 d. not change
Answer: d. not change
In a joing operating agreement, gross income is shared in proportion to each persons contribution to a. total assets b. total costs c. total labor d. none of the above
Answer: total costs
T/F: One of the disadvantage of the sole proprietorship is that the life of the business terminates with the death of the proprietor
Answer: true
T/F: A $1,000 of income 5 years from now is worth the same as $1,000 of income today
Answer: False
T/F: Farms typically have even and steady cashflows
Answer: False
T/F: Maximizing profit is the only goal managers use to make decisions.
Answer: False
T/F: Reveue and expenses can be properly matched in the current time period when using cash accounting
Answer: False
T/F: The current ratio is a measure of solvency
Answer: False
T/F: There is only one possible enterprise budget of each enterprise
Answer: False
T/F: one of the drawbacks to an s corp is double taxation
Answer: False
T/F: working captital and the current ratio are measures of solvency
Answer: False
Both a decision tree and a payoff matrix can be used to illustrate the results of different combinations of management strategies and uncertain outcomes.
Answer: True
T/F: A balance sheet evaluates a firms assets, liablilities, and net worth at a point in time
Answer: True
T/F: Marketable securities (stock, bonds, etc.) and the cash values of life insurance are also easy to convert to cash and are considered liquird assets
Answer: True
T/F: Non current assets have an useful life of more than one year
Answer: True
T/F: Profit or net farm income is equal to total revenue for the accounting period minus total expenses for the same period
Answer: True
T/F: a written agreement is a crucial part of any joint operation
Answer: True
T/F: book value is equal to coasr less accumulated depriciation
Answer: True
T/F: some enterprises may have more than one source of revenue
Answer: True
T/F: the TOTAL amount of depriciation taken will be the same using straight line method or the double declining method
Answer: True
100 head of angus cows is an example of: a. current asset b. non current asset c. current liability d. non current liability
Answer: a. current asset
The degree to which all of a farm's assets adequately cover or exceed all of its liabilities is referred to as: a. solvency b. profitability c. liquidity d. working capital
Answer: a. solvency
One certain farm alfalfa yields have been: 4.3, 7.2, 5.6, 3.6, 6.7, 7.2, 5.5, 5.7, 4.8, and 5.4 tons per acre in the last ten years. Assuming past yields are a good indicator of future yields, what is the most likely yield range for the coming year? a. 4-5 b. 5-6 c. 6-7 d. 7-8
Answer: b. 5-6 tons per acre
A prepaid expense is one where payment is made... a. by check b. in an accounting period prior to the one in which the item will be used to produce c. in a series of payments over time d. before the bill is even received
Answer: b. in an accounting period prior to the one in which the item will be used to produce
The main difference between ADJUSTED net farm income from operations and net farm income from operations is: a. gain/loss on sale of culled breeding livestock b. interest expense c. gain/loss on sale of capital asset d. there is no difference
Answer: b. interest expense
Identify the type of risk for the following situation: soybean prices fall suddenly due to a trade embargo a. production risk b. market/price risk c. financial risk d. personal risk
Answer: b. market/price risk
When calculating return on labor you would subtract out: a. opportunity cost of labor b. opportunity cost of management c. interest expense d. average asset value
Answer: b. opportunity cost of management
Which of the following marketing strategies provides farmer who sells grain or livestock the least protection against a decline in selling prices before they are ready to actually deliver the commodity? a. buying PUT options in advance b. selling at the cash price at the time of delivery c. hedging with a futures contract d. forward contracting in advance
Answer: b. selling at the cash price at the time of delivery
WHich function of management is concerned with monitoring the results of a descition and taking corrective action? a. planning b. implementation c. control d. organization
Answer: c. control (think PICA)
All of the following are examples of non-cash expenses except: a. depriciation b. accrued interest c. accounts payable d. accounts recievable
Answer: d. accounts recievable
Please sleect the individuals who could benefit or utilize the information in an enterprize budget a. and agricultural loan officer b. a farm real estate appraiser c. producer (farmer or rancher) d. all of the above
Answer: d. all of the above
Which financial statement covers only a single point in time rather than a period of time? a. income statement b. statement of owners equity c. statement of cash flows d. balance sheet
Answer: d. balance sheet
You have just made your land loan payment, the remaining balance on your long-term loan of $250,000 should be classified as ____________ on your balance sheet a. current asset b. non current asset c. current liability d. non current laibility
Answer: d. non current laibility
What is the average asset value for Tulia Feed Company if beginning assets are $208,000 and ending in $215,544 a. $225,544 b. $216,772 c. $17,544 d. none of the answers given
Answer: d. none of the answers given
The values in a crop enterpirse budget are normally for: a. one unti of output b. 100lbs of output c. one bushel of output d. one acre
Answer: d. one acre
To calculate working capital, you would: a. subtract total liablilties from total assets b. divide total liablities by current assets c. divide current assets by current liabilities d. none of the above
Aswer: d. none of the above (CA-CL)
