Farm Business Management Midterm

If a firm has a equity to asset ratio of 0.6, and total assets of $100, what is the value of the firm's liabilities?

40

If a firm has assets equal to $100, and a debt to equity ratio of 1.5, what is the value of the firms total equity?

40

If a firm has assets equal to $100, and equity equal to $40, what is the value of the firm's liabilities?

60

True or False, Net farm income from operations includes capital gains/losses

False

This characteristic of the farm business decision making environment might prevent a farmer in the Arkansas River bottom from planting 5,000 more acres of crops next year:

Fixed Supply of Land

Which of the following is not a desirable characteristic of strategic goals?

They should have a timetable They should be verbal They should be measurable They should be specific Ans: They should be verbal

Net Working Capital

current assets - current liabilities (Only Dollar Amount)

If a firm has assets equal to $120, equity equal to $60, what is the firm's debt to equity ratio?

1

Farm Business activities can be divided into 3 categories:

1. Production or Operation 2. Investment 3. Financing

f a firm has a debt to asset ratio of 0.4, and total assets of $100, what is the value of the firm's equity?

60

An ROA of 7.00% indicates that for every $1 dollar of assets, the firm generates:

7 cents of profit

If a farm has NFIO of $100,000, and an opportunity cost total of $25,000, what is the farm's return to equity?

75000

An asset with an original cost of $10,000, a salvage value of $2,000, and a useful life of 10 years has an annual depreciation expense of?

800

Depreciation is:

A business expense that reduces annual profit

An accounting period should begin/end when:

A business is in a period of little activity

Expense

A cost or expenditure incurred in the production of revenue

Liability

A debt or other financial obligation that must be paid at some point in the future

Assessing the physical, financial, and human resources within the company is called:

Internal Scanning

This type of farm business activity involves the purchase or sale of long term assets, such as a truck or tractor:

Investing

Returns to Equity

NFIO-OC Labor-OC Management

Inventory

Physical quantity and financial value of product produced for sale that have not yet been sold

Accrual Accounting System

Records transactions at the time they occur regardless of when money is exchanged

Disadvantage of Accrual Accounting

Requires more time and knowledge than cash accounting, less tax flexibility

Equity to Asset Ratio

TE/TA

Debt to Asset Ratio

TL/TA

Returns to Debt

Term Interest + Operating Interest

Which function of management is concerned with monitoring the results of a decision and taking corrective action?

Control

Single Entry

One entry is made for each transaction

Cash Accounting System

Only records transactions when cash exchanges hands

Establishing goals, identifying resources, and allocating resources to competing uses are all steps performed in which function of management?

Planning

Which of the following is not one of the four functions of management:

Planning Implementation Delegation Control Ans: Delegation

Solvency

Provides an indication of a company's ability to pay off all financial obligations if all assets were sold

A firm's mission statement should clearly define the business's:

Purpose and Objective

Disadvantage of Cash Accounting

Recorded revenues and expenses may not be accurate reflections of activities during the accounting period

Accounts Receivable

Revenue for a product that has been sold or a service provided but for which no payment has yet been received

The ability of a decision to be easily reversed is known as:

Revocability

Which of the following would be considered a responsibility in the adjustment function of management?

Shuffling employee responsibilities throughout a company to find a better fit Establish goals and identify resources Vet job applicants and hold interviews Measuring new employee performance Ans: Shuffling employee responsibilities throughout a company to find a better fit

Advantage of Cash Accounting

Simple and easy to use, allows some tax flexibility

The balance sheet is used to analyze:

Solvency and Liquidity

Owner's Equity

The difference between business assets and business liabilities; also known as Net Worth

Revenue

The value of products and services produced by a business during an accounting period

If a firm has assets equal to $100, and equity equal to $60, what is the firm's equity to asset ratio?

0.6

If a firm has assets equal to $100, and liabilites equal to $60, what is the firm's debt to asset ratio?

0.6

If a firm has equity equal to $50, and a debt to equity ratio of 1.5, what is the value of the firm's assets?

125

If a firm has total liabilities of $550, and total equity of $450, what is the total value of assets?

$1000

Returns to Assets

(NFIO - Total OC) + Total interest paid

OPMR formula

(Operating Profit/Total Revenue) x 100

Straight-Line annual depreciation formula

(Original cost - salvage value)/Useful life

ROA formula

(Return to Assets/Average Assets) x 100

ROD formula

(Total Interest Exp Paid/Average Liabilities) x 100

If a farm has returns to assets of $50,000 and average assets of $100,000, what is the farm's ROA?

0.5 or 50%

If a firm has a debt to asset ratio of 0.4, and equity equal to $60, what is the firm's debt to equity ratio?

0.6

If a firm has a debt to asset ratio of 0.4, what is the firm's equity to asset ratio?

0.6

Which of the following is NOT a characteristic of depreciable assets?

A determinable useful life (Not unlimited) A useful life of more than one year (non-current) Has a use in the business A useful life of less than one year (current) Ans: A useful life of less than one year (current)

What is the correct form of the balance sheet equation?

A=L+OE

Advantage of Accrual Accounting

Accurate

Where is Depreciation shown?

All income Statements

Accounts Payable

An expense that has been incurred but not yet paid

Asset

Any item of financial value to the business, whether tangible or intangible

This characteristic of the farm business decision making environment might prevent an Oklahoma farmer from growing rice:

Biological processes and weather

An asset's original cost minus any accumulated depreciation equals:

Book Value

The original cost of an asset minus any accumulated depreciation is known as:

Book Value

Current Ratio

CA/CL, a liquidity ratio.

An asset that will be used or sold to generate revenue within one year is called:

Current

Which of the following balance sheet measures is a dollar measure?

Current ratio Debt/asset ratio Net working capital Leverage ratio Ans: Net Working Capital

Gain or Loss on Capital Assets

Difference between the sale price and book value when a capital asset is sold

What is the global standard in accounting, is very accurate, but requires extensive accounting knowledge to use? (Does not impact tax liability)

Double Entry

Surveying the environment outside the business, performed during the strategic planning process, is also known as:

External Scanning

What are the steps for developing a strategic farm management plan?

Formulate the goals for the farm and family Frequency of Decision Define the mission of the business Assess the resources available to the business (internal scanning) Revocability of Decision Survey the world surrounding the business (external scanning) Number of Alternatives Identify and select appropriate strategies Identify and define the problem or opportunity Implement and refine the selected strategies

The amount of time that a farm manager has to make a decision is known as:

Imminence

Acquiring the resources needed for a plan and setting it in motion describes which function of managment?

Implementation

Which of the following financial statements is used to calculate profitability?

Income Statement Chart of Accounts Balance Sheet Cash Flow Statement Ans: Income Statement

A capital gain or loss is:

Income from investment activities

Which of the following would NOT be included as a current liability?

Land loan payment due this year Accounts payable Land loan Operating lines of credit Ans: Land Loan

Which of the following is a short-run concept that compares current assets to current liabilities?

Liquidity

Liquidity

Measures the ability of the business to meet financial obligations as they come due without disrupting normal business operations

Which of the following would be considered a responsibility in the control function of management?

Measuring new employee performance Establish goals and identify resources Vet job applicants and hold interviews Shuffling employee responsibilities throughout a company to find a better fit Ans: Measuring new employee performance

(Fill in) is considered to be a more accurate measure of profit than (Fill in) because it does not include capital gains/losses.

NFIO & NFI