Farm Business
Bob told the banker that his partner, Justin, had quit their partnership so he was going to make one-half of the truck payment as he usually did, and let the banker collect the other half from Justin. The banker would most likely say,:
"As with any partnership you are individually and collectively responsible for the full amount."
If the Murphy's decide to use the futures market to hedge the price of market cattle to be sold in the future they would initially:
"Sell futures contracts expecting to buy them back when the cattle are
Amy has 8,000 ten-inch hanging baskets to fill with soil. How much will her per-unit cost of soil be if each bag of soil costs $18 and each bag will fill 62 ten-inch baskets?
$0.29
An increase in the value of the U.S. dollar relative to the currency of other countries should result in:
less costly imports to the U.S
Forward contracting provides the farmer with:
less price uncertainty
A lower price most likely indicates
less scarcity.
A farmer had only $5,000 to invest in a cattle feeding operation. In addition he borrowed $20,000 to increase his...
leverage
All debt obligations are ____________.
liabilities
All your debt obligations to others are ____________.
liabilities
Another term for debt is:
liability
When one is negligent and therefore liable for injury or damage caused to someone else what insurance covers this?
liability
The ability of a business to make enough cash to pay bills without disrupting the business is called:
liquidity
The ability of a business to pay off liabilities without disrupting business is termed:
liquidity
Which of the following is deductible on farm income taxes?
livestock feed costs
One way government might influence the production of certain products or commodities would be to...
loan money at low interest rates to producers.
Which of the following is a fixed cost? Cost of...
machinery
If the revenue from an enterprise is more than the total variable and fixed costs, a producer will
make a profit.
Larry has hedged his peanut crop. If he makes the predicted yield and his costs do not change he will...
make almost exactly what he predicted no matter how low or how high the price goes
Larry has hedged his peanut crop. If he makes the predicted yield and his costs do not change he will ...
make almost exactly what he predicted no matter how low or how high the price goes.
Net farm income represents a return to what factors of production?
management, capital, and unpaid operator and family labor
What are the four (4) parts of production?
management, land, labor, capital
The cost of producing one additional unit of output is called:
marginal cost
When planning a change in resource use in a farm business, which of the following comparisons is considered most important?
marginal cost to marginal return.
The coordination of activities that are involved with the buying or selling of a product is called...
marketing
The coordination of activities that are involved with the moving of a commodity from the producer to the ultimate consumer is:
marketing
The processes and services involved in moving a commodity from the producer to the ultimate consumer is called...
marketing
The coordination of activities that are involved with the moving of a commodity from the producer to the ultimate consumer is referred to as ...
marketing.
For maximum profit, one should strive for...
maximum net profit
If the revenue from an enterprise will cover variable costs and most of the fixed costs, a rational producer will:
minimize his losses by producing in the short run
Which of the following is a fixed expense?
monthly apartment rent
An advantage of the cash method of reporting income and expenses is:
more flexibility to choose when to take income and deduct expenses.
Renting farm land on shares of production rather than cash results in:
more risk for the landlord, less risk for the tenant.
When a farmer borrows money to purchase land, he usually must offer the title to the property as security until the loan or debt has been repaid. This credit instrument is commonly referred to as a:
mortgage
An example of a variable cost of producing strawberries is:
mulch.
If a hedger is to carry a hedge through completion, the hedger:
must be prepared to meet all margin calls.
Which of the following does not appear on the net worth statement?
net farm income
management is:"
net farm income.
In considering farm financial statements, the balance sheet is also referred to as a/an . . .
net worth statement
The difference between total assets minus total liabilities is...
net worth.
Total assets minus total liabilities equals:
net worth.
A farmer is contemplating buying a combine instead of having his wheat custom harvested. In his partial budget, if additional costs and reduced returns are greater than additional returns and reduced costs he should:
not buy the combine.
Cash flow summaries, net worth statement, income statement, and detailed enterprise analysis are all forms of:
records
Farm budgets differ from farm records in that:
records are a history of what has happened; budgets are a projection of what will happen.
The purpose of insurance is to...
reduce risk and uncertainty
The purpose of insurance is to:
reduce risk and uncertainty
A grower might sign a contract to produce a product at a set price in order to...
reduce risks
Crop insurance, hedging, options, and liability insurance provide a means of:
reducing risks
The major advantage of renting or leasing over purchasing land or machinery is to:
release capital for other uses.
The Commissioner of Agriculture proposes a new program to stabilize the price of corn by instituting a reserve system. This will probably work by . . .
releasing supplies in short production years and storing corn in years of heavy production
If demand rises and supply remains constant, price should?
rise
If pork and beef products compete and beef prices rise, then pork demand will probably . . .
rise
I sold my old worn out tractor I had used for twenty years for $300.00. This is the .
salvage value
Which of the following is NOT a type of budget used by farmers and ranchers?
sample budget
A 62 year old woman wants to pass along her farm and other assets to her children with a minimum amount of taxes. She should:
see someone specializing in estate planning.
Which of the following is a variable cost?
seed
Which of the following are variable costs?
seed, fertilizer, and fuel
A livestock producer wishing to use futures markets to hedge the price of cattle to be sold in the future would initially:
sell futures contracts expecting to buy them back when he sells his cattle.
The advertisement read "Liquidation of the Jones Farm." This probably meant that Jones was...
selling out
What type credit would be needed to purchase inputs for producing commodities which will be sold within the next year?
short-term
Goals that can be achieved in less than one year and usually provide immediate satisfaction are:
short-term goals
Interest paid annually at the end of the year on the average balance in a savings account is ____.
simple interest
A business owned and managed by one person is called (a) _____.
sole proprietorship
A business that is owned and controlled by one person is a:
sole proprietorship
Your ability to pay all debts if you liquidated your business is called:
solvency
A business is said to be ________ if total assets exceed total liabilities.
solvent
A feedlot operator purchased 100 feeder steers with an average weight of 700 pounds and sold them at an average weight of 1050 pounds. Total feed cost for the pen was $18,000. Feed cost per pound of gain was equal to:
$0.514
If a $3,000 micro-computer system can be depreciated over three years using the straight line method, what is the depreciation taken for the first year?
$1,000
Jason borrowed $1,000 from the bank at 8% interest. He is to make a lump-sum payment at the end of the year. If simple interest is used, what is the total amount he will pay
$1,080
Kelly borrowed $1000 from the bank at 8% interest. She is to make a lump-sum payment at the end of the year. If simple interest is used, what is the total amount she will pay?
$1,080
Suppose $200 cash is deposited in a bank and the reserve requirement ratio is 10%. How much can demand deposits expand?
$1,800
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?
$146.25
Suppose farmer Johnson buys a new cotton picker for $160,000. It has a useful life of six years and a salvage value of $40,000. What is the annual depreciation using the straight-line method? "
$20,000
If you deposit $200 in an account that pays 6 percent simple interest per year, which of the following would be the balance in your savings account at the end of the first year?
$212
Johnny was quoted a price of $7.50 for his beans but decided not to sell. He later sold to another buyer at $7.57. With production cost at $6.58 per bushel and 3,500 bushels to sell, how much extra profit did he make by checking with the second buyer?
$245.00
Magruder Farms Inc. presently has current liabilities in the amount of $10,000, intermediate liabilities of $50,000 and long term liabilities of $225,000. In order for the business to be considered solvent, total assets must be greater than ________.
$285,000
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?
$75,400
Suppose a piece of machinery is to have $4500 total depreciation over its lifetime. Using the straight line depreciation method, how much depreciation can be taken off the third year if the machinery has an expected life of 5 years and no salvage value?
$900.00
The present value of $100 that will be received at the end of 1 year, given a 5% interest (discount) rate is:
$95
Sally made $12,479 profit on her operation last year. Her capital investment was $39,550. What was her rate of return to capital invested?
31.55%
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...
accrual method
With which method of record keeping is it easiest to determine the net farm income and analyze the strong and weak points of an agricultural business from year to year?
accrual method
The unpaid interest (at any time) that would be payable if the loan principal was due.
accrued interest
The main difference between cash and accrual accounting is that accrual accounting includes
adjustments for changes in inventory.
A $25,000 loan is scheduled for repayment over a 10 year period, with equal annual principle payments of $2,500. The loan is said to be .
amortized
Depreciation is best defined as:
an allowance for wear, tear and obsolescence..
A budget for producing soybeans would be termed:
an enterprise budget.
A cash-flow projection is defined as:
an estimate of monthly cash inflows and outflows over a period of time.
A loan to purchase chemicals for crops is generally called:
an operating loan
Bill knows that corn yield peaks at about 150 bushels with approximately 125 units of fertilizer in his county. He also knows he can produce 25 bushels of corn without fertilizer. With this information, Bill knows that:
anything more than 125 units of fertilizer would be wasted
D. borrowing heavily"
diversification
A measurable point where an increase in the addition of a variable cost item decreases the actual output of an enterprise is referred to as
diminishing returns
Ann knows that she will need $100,000 for living expenses when she retires in 20 years. She used _________ to determine how much she needs to invest today at 10% interest to accumulate the needed funds.
discounting
Ann knows that she will need $100,000 for living expenses when she retires in 20 years. She used __________ to determine how much she needs to invest today at 10% interest to accumulate the needed funds.
discounting
The process of finding the present value of a dollar to be received at some future date is known as:
discounting
Rate of return on investment for a farm business is calculated by:
dividing return to capital by average total assets.
The rate of return on investment for a farm business is found by...
dividing return to capital by total asset value
The accounting system that keeps balance in financial transactions is:
double entry accounting
Thomas is a poultry producer for Gold Kist. I can purchase all the dressed chickens (originally from Thomas's farm) my family needs at the supermarket cheaper than I can raise and dress them myself. This can be explained by the theory
economies of scale
The percent change in quantity divided by the percent change in price is defined as:
elasticity
A budget for corn would be a(n):
enterprise budget
A statement of expected returns and costs that are associated with the production of one product is a(n):
enterprise budget
When demand decreases
equilibrium quantity decreases.
When demand and supply are equal, price is said to be at:
equilibrium.
Planning the acquisition, enjoyment and distribution of property for the benefit of their family is a(n):
estate plan
The bank officer will appraise my farm. This means he/she will:
estimate its fair market value
A producer most often uses a cash flow statement to...
estimate the amount of credit needed and when it will be needed.
A banker loaning money to farm operators may require a cash flow analysis to:
evaluate loan repayment potential.
Lenders often require cash flow analyses to:
evaluate repayment potential.
The equilibrium price for a product is the price at which the quantity supplied is ____.
exactly equals the demand
Which of the following is not one of the three parts of a net worth statement?
expenditures
Pollution is an example of
externality cost.
If all other factors remain the same and the supply of a product goes up, then the price of that product will probably...
fall.
Joe is a U.S. apple producer, all his factors of production have remained constant over the last two years, however, suddenly U.S. apple production has soared, with production factors still remaining constant, Joe can expect apple prices to...
fall.
Which of the following should not be depreciated?
land
A person appointed in a will or by the court system to carry out requests and dispose of all property in accordance with the deceased is a:
Executor
If maintenance costs rise for industry, what effect will this have on expected return?
Expected return decreases
A spouse who works for the other spouse has to pay social security taxes
FALSE
An increase in price will result in less quantity demanded for a normal good.
FALSE
Businesses do not need to supply consumers with accurate information.
FALSE
Firms in perfect competition have easy entry to the market but face barriers to exit the market.
FALSE
Increased demand will result in a decrease in supply.
FALSE
Monopolies will always have economic profits.
FALSE
Sole proprietorships raise financial capital by issuing stocks and bonds.
FALSE
The United States is the world's smallest exporter, which causes large trade deficits.
FALSE
equal increase in demand and supply will always result in an increase in the market price.
FALSE
Which of the following describes the oligopoly market structure best?
Few large firms, barriers to entry, mutual interdependence
Money that is owed to you at the end of the year is termed:
accounts receivable
Estate taxes are imposed:
by the Federal government after death
200 bu. 2300 lbs. fertilizer $600 gross returns"
diminishing returns
The average size of full-time farms in the U.S. is ______ in 1945.
larger than
An appropriate use for short-term credit would be to...
purchase fertilizer and seed.
An appropriate use for long-term credit is to:
purchase land and buildings.
Fixed cost plus cost equals total cost
variable
Tom's assets amount to $40,000 and his liabilities are $3,000. What is his net worth?
$37,000
Suppose land prices in John's area are expected to be stable over the next several years and taxes are set at $10 per acre/per year. If John can get a long-term loan at 10% and knows that he can count on a $50 profit per acre, then the maximum he should consider paying for land is about ____ per acre.
$400
Which of the following is an asset?
$400.00 in savings
If the variable operating costs of Lisa's watermelon production is $334.57 and the yield is 7 tons, what is Lisa's break-even price per ton?
$47.80
Which of the items listed below is a liability?
$5,000 mortgage
How much will the yearly depreciation be if you use the straight line depreciation method for a computer system costing $3,500 with a seven year life?
$500
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?
$55,000
Scott sold a futures contract in January for November soybeans at $6.35 per bushel. At harvest time he sells his beans at the local market for $8.40 per bushel and buys back his futures contract. The effective price Scott got for his soybeans is about...
$6.35
If Pam's production cost for cabbage is $3.00 per bag and the price she receives is $5.00 per bag, how much would the price have to be for her to double the profit she makes at $5.00?
$7.00
An electrician you hire for a fee to repair an irrigation pump would best be described as a(n):
independent contractor.
Which of the following Net Capital Ratios would indicate the best financial position? (Total Assets / Total Liabilities)
2.8
Which of the following Net Capital Ratios would indicate the best financial position? (Total Assets/Total Liabilities
2.8
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...
2.97:1
With an amortized loan over 25 years you will pay the lowest amount of the interest during the year?
25th
If a farmer's equity is $560,000 and his liabilities are $270,000, his debt-equity ratio is:
0.48
If a farmer's equity is $400,000 and his liabilities are $250,000 his debt-equity ratio (liability/equity) is:
0.63
A farmer has total assets of $500,000 of which land is $300,000. The farmer's debt : equity ratio is 1.0. What will the farmer's debt : equity ratio be if the lender devalues the land by 30%?
1.22
As a farm manager you want to find your net capital ratio (total assets / total liabilities). You have current liabilities of $58,000 and long term liabilities of $82,000. Your assets equal $210,000. Your net capital ratio would be:
1.5
Which of the following net capital ratios would indicate the greatest degree of solvency? (Total Assets/Total Liabilities)
1.5
Which of the following Net Capital Ratios would indicate the best financial position? (Total Assets / Total Liabilities)
1.8
Which of the following is NOT a current liability?
10 year equipment loan
John Henry made $75,345 profit on his farrow-to-finish operation. His capital investment was $670,450. What was his rate of return to capital invested?
11%
Samuel made $22,470 profit on his operation last year. His capital investment was $200,550. What was his rate of return to capital invested?
11.20%
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?
15.41%
A feed dealer makes a credit charge of 1 1/2% monthly on all bills not paid by the 10th of the month following the monthly billing on the first. The annual percentage interest rate would be:
18%
Ann made $41,303 profit on her nursery operation last year. Her capital investment was $216,108. What was her rate of return to capital invested?
19%
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 $6.00 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?
32 ½ bushels
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?
37 1/2 bushels
Which of the following current ratios would indicate the highest degree of solvency? (Current Assets/Current Liabilities)
4.56:1
Which of the following is a tax deferred retirement savings plan offered to employees by their employer?
401(k) plan
In the futures market for corn and soybeans, one futures contract covers:
5,000 bushels
At what age will term life insurance cost a person the most?
55 years
Jeff plants corn this year on 98 acres. It costs him $138.00 per acre to grow the corn. If corn brings $2.47 per bushel, how many bushels does he have to produce to break even?
56 bu./acre
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?
9%
The best format for a budget in our complex economy is:
A formal written plan
A management tool that shows projected costs and net returns associated with some change in the farm business is:
A partial budget
Suppose a binding price ceiling is placed on gasoline, what is the likely effect?
A shortage
If the government were to set the price of milk at an artificially high price, what is likely to occur?
A surplus
Suppose a price floor is placed on wheat, what is the likely effect?
A surplus
If the government were to set the price of milk at an artificially high price, what is likely to occur.
A surplus.
If demand and supply increased equally for an agricultural product, the results would be:
An increased quantity will be sold at the same price.
A management tool that shows the physical and financial plan for the entire farm or ranch business for a specified period of time is:
A whole farm budget
Liability of a general partner in a partnership is limited to:
All debts and obligations of the partnership
A factor that will help determine priorities of goals is
All of the answers listed
A good reason for keeping good records is...
All of the answers listed
A price hedge "protects" the producer against...
All of the answers listed
An enterprise budget:
All of the answers listed
James told his agriculture teacher that he was keeping records to satisfy tax filing requirements. His teacher was correct in saying...
All of the answers listed
Suppose the price of pork and beef at the supermarket doubles. What is a likely related occurrence?
All of the answers listed
Term debt coverage ratio indicates whether a farm business produces enough cash to cover the current portion of the term debt (farm and non-farm). A projected ratio of less than one (1) indicates that a business may need to:
All of the answers listed
What statement best describes an advantage of a family farm corporation?
All of the answers listed
Which is true of credit? Credit...
All of the answers listed
Which of the following is a variable cost for a swine farmer?
All of the answers listed
Which of the following is considered the first step in developing a budget?
Appraising the business and family goals and objectives
A farmer's income tax should be filed no later than provided he has filed his estimated tax by Jan. 15th.
April 15
Net worth equals:
Assets - Liabilities
Under this type of economic system, people, rather than the government, own the resources and run the businesses. It is known as what kind of economy?
Both capitalist and market
Failure to comply with the terms of a contract is known as:
Breach of contract
Who would you go to place a hedge?
Broker
A well known market where futures contracts are traded is the:
Chicago Board of Trade.
The Murphys have historically forward contracted the price they receive for the crops they have grown. They plan to continue to forward contract, but they would like to obtain the benefits if prices increase. Which of the following alternatives should they consider?
Buy a call option
In theory, how do grain reserves stabilize prices?
By releasing supplies in short production years and absorbing supplies in big production years.
A contains the financial history of your business transaction for a given time period.
Cash flow summary
Which of the following is NOT an advantage of a fixed price forward contract sale?
Delivery of specified quantity is required
Production of basic agricultural commodities and the incorporation of value added services at various stages of marketing respond to:
Consumer behavior
What type of firm has the largest assets in dollar value?
Corporations
The three R's (Risk, Returns, and Repayment) are frequently evaluated to determine a farmer's:
Credit worthiness
Which items are most readily converted into cash without loss?
Current assets
_____________ are the cash value of assets based on actual cost or market value less sale expenses.
Current values
Assets are items that have a market value. They are separated into three categories which are , ,and .
Current, Intermediate, and Long-term
The percent change in quantity divided by percent change in price is:
Elasticity
________ is a measure of how sensitive the market is to a change in one of the parts.
Elasticity
When the Murphy's sell fall soybeans to the Bio-Diesel plant in May for fall delivery it is considered a:
Forward contract
Which is an advantage of land ownership over land leasing?
Greater potential for equity accumulation.
Net Cash Income equals:
Gross Receipts - Total Expenses
Which of the following statements is correct about the law of supply ?
High price = more product supplied.
Which of the following would all decrease supply?
Higher business taxes, higher resource costs, fewer suppliers
An advantage of a farm corporation is that:
it limits liability of the owners.
Assume you are a speculator in corn futures, and that you somehow got information, before it was widespread knowledge, that the acreage of corn planted in the mid-west was down drastically from earlier forecasts. What would be the most profitable use of this information?
Immediately buy futures contracts of corn at the current price.
A federal deficit will have what effect on the national debt?
Increase it
Expectations of a shortage will have what effect on demand?
Increase it
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:
Increase the demand for wheat
_______ is a means of shifting risk of uncertain events, at a cost, from you to someone else specializing in taking risks
Insurance
Which of the following is true?
Investment tax credit is given as an incentive to invest in capital outlay items such as equipment.
Which of the following does not describe perfect competition?
Is a price maker.
Mr. Brown purchased a computer system for use in managing his farm. How much will the depreciation be for the first year. Assume that the computer will be sold at the end of five years for a salvage value of $600
It cannot be determined from the data supplied.
Which of the following is not an advantage of a Cash Flow projection?
It determines long term profitability
What is a line of credit?
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.
The price for peanut butter rises. Assuming the supply for jam is constant, what will happen to the price of jam?
It will decrease.
Which of the following is an advantage of increasing financial leverage?
It's a way to increase returns to equity capital
Immigration will have the following effect on wages and jobs:
Its effect on the wage cannot be determined.
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 ...
James will have to pay all the note if his neighbor defaults
Suppose crude oil prices rise, what is the likely effect on gasoline a product made from crude oil?
Supply of gasoline decreases
On a dark night a tornado blew down some trees onto John's fence. While John was still asleep, and before daylight, one of John's steers wandered out onto the road and got hit by Hosea's car. The steer was killed and the car was badly damaged. Which statement is correct?
John is not liable for Hosea's car damage and Hosea is probably not liable for the steer
Which of the following is considered one of the four factors of production?
Labor
When the price of a product is increased with no change in factors other than price, less product will be purchased. This is the:
Law of Demand.
Which of the following statements is correct about the law of demand?
Low price = more quantity demanded
In preparing a cash flow plan, one should not include which expense items:
Machinery depreciation
The funds deposited with a broker to trade futures contracts is called:
Margin
A decrease in the value of the U.S. dollar relative to other countries currency should:
More costly imports to the U.S.
What is another term used to describe a balance sheet?
Net worth statement
Which of the following gives the best measure of financial progress over a period of years?
Net worth statement
If a producer has gross sales of $1,000,000, then it can be said that . . .
None of the answers listed
Johns current ratio of assets to liabilities is 2:1. One thing this means is that....
None of the answers listed
Which of the following items will increase the net worth of a farmer?
None of the answers listed
A market in which there are a few producers of very similar products, such as automotive manufacturers, is an example of which of the following?
Oligopoly
Which is not true about the value of money?
One dollar received today is worth less than a dollar received next year
Which best describes the monopoly market structure?
One firm, unique product, barrier to entry
Which best describes sole proprietorship?
One owner, unlimited liability, owner does most of the management
is used to record income and expenses that cannot be attributed directly to an enterprise at the time incurred.
Overhead enterprise
The formula for measuring price elasticity is:
Percentage change in quantity/ Percentage change in price
Which of the following statements is true about family-farm corporations?
Personal liability is limited to the investment in the business.
A supply curve shows the relationship between quantity supplied and
Price
As supply decreases and demand decreases, what effect does this have on equilibrium price and quantity?
Price indeterminant, quantity decreases
Select the item that is NOT deductible on Federal Income Tax returns
Principle paid on debt.
Jason has a fixed cost of $2 and a projected variable cost of $.50 per bag of cabbage. The best price he can contract for a week before planting time is $2.25 a bag and it is too late to shift to another enterprise. Unfortunately, the projected price over the next few years is no better. What is your advise to Jason?
Produce this year -- look for another crop for next season.
A market that has a uniform commodity such as corn or soybeans with many buyers and sellers is:
Pure competition
Gives you the right to sell underlying futures at a specific price:
Put option
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?
Sell now
If the price increases on a product with a perfectly inelastic demand, what will happen to quantity demanded?
Stays the same
A decrease in supply will usually result in a decrease in market equilibrium
TRUE
Careful evaluation of alternatives is the best way to get the most from your money.
TRUE
In partnerships, each partner is liable for the partnership debts of his or her partner.
TRUE
Perfect competition results in long-run market outcomes that are efficient.
TRUE
The price of a product when it is new on the market is usually the highest it will ever be.
TRUE
Purchase of a call option on corn means:
The buyer may, but is not required to, buy a corn futures contract at a set price.
Lynn has hedged his soybeans based on predicted production of 50 bushels per acre. He also contracted to purchase all his materials, supplies, and other inputs at a good price to produce the crop. Under which of the following conditions would Lynn be in trouble?
The market price at harvest time is double what he hedged the beans for and he makes 30 bushels per acre
If we want to consider the time value of money in considering alternative farm investments, we should choose the investment with:
The highest net present value.
If the Murphy Farms' term-debt coverage ratio was 2.09:1, what will this ratio show the Murphys about their ability to cover all current (farm and non-farm) term debt payments?
The ratio indicates the farm business has $2.09 for each $1 of debt payment
Which of the following is not a characteristic of a cooperative?
They emphasize high profits.
The people below have their current ratio of assets to liabilities listed beside their name. Based solely on this ratio which would you most likely lend money to?
Thomas 6:1
The primary purpose of the total budget is...
To show what the net return to the owned resources of the farm will be under the farm plan
A farm or ranch is termed solvent if which of the following apply?
Total assets are equal to or greater than total liabilities.
Which one is NOT an advantage of farm corporations?
Unlimited liability
In budget analysis which of the following is NOT considered one of the four factors of production?
Weather
Ray owns a greenhouse in North Georgia. Two hundred yards away from Ray's greenhouse is a chicken house owned and operated by Marc. On a cold stormy night, part of the roof of the chicken house blew off into the side of the greenhouse and broke a good portion of the glass. This damage allowed the cold temperature to kill all of the Easter Lilies Ray was growing for the Easter holiday. In this case is Marc responsible for the anything?
Yes, Marc is responsible for both the repairs and the Easter Lilies
A plan for the use of money based on goals and expected income and expenditures is:
a budget
A study to determine whether or not a business will be profitable is called:
a feasibility study.
A cost of production which does not vary with level of total production and includes items as depreciation, taxes, insurance, interest on investments is called:
a fixed cost
A market where there is a true interaction of supply and demand, and where government interference does not exist is an example of:
a free market.
Other things being equal, a decrease in the amount of an agricultural commodity offered for sale will result in:
a higher price
A proportional or flat tax will result in
a higher tax paid as a person's income rises.
An economic profit is equal to
accounting profit-implicit costs.
Intermediate liabilities include...
a mortgage on equipment.
Long-term liabilities include ...
a mortgage on real estate
A Georgia cotton farmer might anticipate an increase in the demand for U.S. cotton by the following event
a near total cotton crop failure in China and Russia
A budget is best described as __________ of income and expense
a prediction
A farm budget is...
a prediction of what will happen.
An increase in the supply of an agricultural commodity normally results in
a price decrease.
The minimum wage is an example of
a price floor.
A reduction in the supply of an agricultural commodity, with no change in demand, normally results in:
a price increase
Hedging is...
a strategy that decreases price risk through futures market transactions
A tariff is
a tax on imports.
In developing an enterprise budget, crop insurance should be considered as:
a variable cost.
Speculators in the futures market...
accept the price risk the hedgers are seeking to avoid.
Individual agricultural producers are described as "price takers" because:
as individuals, they have very little power to influence prices.
The property and other resources owned and controlled by a business are:
assets
A business is "solvent" if total:
assets exceed the total liabilities.
A business is said to be solvent if total:
assets exceed total liabilities.
If a tractor's use is increased from 300 to 400 acres per year its . . .
average fixed cost per acre will decline
Suppose a producer has just enough acreage to justify the tractor he has purchased. Why would he want to do custom work for his neighbor? So that his:
average fixed cost per acre will decline.
A producer bought a new combine which was larger and much more expensive than his old one, so he said, "I need to rent more acreage so that my:
average fixed cost per acre will decline."
If the use of a tractor is decreased from 750 to 500 acres per year it's:
average fixed cost per acre will increase
What is another term used to describe a net worth statement ?
balance sheet
Daryl purchased a tract of land and the owner agreed to finance the purchase. The loan was amortized over ten years but a clause in the contract called for the loan balance to come due at the end of five years. This particular type loan is called a ______ loan.
balloon
A legal process in which people who cannot pay their debts must surrender most of their property is called ____.
bankruptcy
The difference between a cash price at a particular location and a specified futures contract price is called
basis
The difference between the local cash price and the futures price is called the:
basis
As a cooperative member, your share in the profits the cooperative made are distributed to you on the...
basis of patronage
In general, it can be said that when beef prices are low that:
beef supplies are high.
If Mary Jones's corn yield doubles, her:
break-even price will decrease
A plan that projects expected returns and costs is called a...
budget
A planning document on which you record your expected income, actual income, and spending over a short time is a ____.
budget worksheet
A plan that projects expected returns and costs is called a...
budget.
Long term assets include:
buildings
Long term, or fixed, assets include...
buildings
One where small supplies and/or strong demand causes prices to rise is known as a:
bull market
A net gain from the sale of real or depreciable property held more than one year is a:
capital gain
The profit you earn from selling stock at a higher price than you paid for is called a ____.
capital gain
An economic system in which the means of production are privately owned and controlled and which is characterized by competition and the profit motive is called:
capitalism
Which of the following items would be considered expenses?
car payment
When calculating their taxable income for the year, most farmers use which accounting method?
cash
An estimate of monthly cash inflows and outflows is a:
cash flow projection
An estimate of monthly cash inflows and outflows over a year, is a:
cash flow projection
A producer realized that he would have to borrow money for operating capital at some point during the year but didn't know exactly when. His Vocational Agriculture teacher suggested that he should prepare a to answer this particular question
cash flow statement
One example of a current asset is (a) .
cash on hand
Partial budgets help analyze...
changes within enterprise budgets.
The appreciation of the yen versus the dollar means a vacation for Japanese tourists coming to the United States
cheaper.
The depreciation of the dollar versus the yen means U.S. exports are
cheaper.
Livestock, land and other personal property used to secure a loan is knows as...
collateral
When a banker asks a person to pledge his land, livestock or similar property to obtain a loan, this property is referred to as...
collateral
Which of the following is not one of the three basic forms of business organizations?
consortium
A written statement that shows the exact size, location, ownership and method of ownership of property is called a:
contract.
A nonprofit business organization that is owned and controlled by the members for the mutual benefit of the members is a:
cooperative
A legal entity, which is separate from stockholders, and protects the stockholders from personal liability, best describes a(n):
corporation.
The book value of a piece of equipment would be the:
cost of the item minus any adjustments such as prior depreciation
"Borrowing power -- the potential debt an individual or business can incur, usually in times when equity capital is insufficient," is a good definition of ______.
credit
The projected cash flow is useful in estimating:
credit needs
A measure of your credit worthiness is your ____.
credit rating
One of the best measures of liquidity is:
current ratio
Which of the following is considered a capital investment?
dairy cow
Speculators and hedgers
deal in the futures market.
As output is increased, average fixed cost will:
decrease
If demand for a product goes down and all other factors remain the same, then the price of that product will probably:
decrease
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:
decrease
A supply increase will
decrease equilibrium price.
Increased environmental regulations will likely
decrease pollution and increase costs of production.
If interest rates rise, bond prices will
decrease.
If farmers experience a crop failure the GNP (Gross National Product) is...
decreased
A document that shows the exact size, location, ownership, and method of ownership of property is a...
deed.
The first step in making a sound management decision is to:
define the problem.
The total quantity of goods and services buyers are willing and able to buy at various prices at a given time is called:
demand.
James thought that his sprayer would last five years. He should . . .
depreciate it over a period of five rears
The appreciation of the yen versus the dollar means the value of the dollar has
depreciated.
A decline in the value of an asset over its useful life associated with use, age and obsolescence is:
depreciation
Which of the following is NOT a variable cost?
depreciation
In an on-going farm business, which of the following is considered a fixed cost?
depreciation on equipment
Which of these does a profit and loss statement not accomplish?
details cash flow problems
What is not a specific purpose of a cash flow analysis? To...
determine the profitability of a particular operation or enterprise
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 ?
farm management
Johnny was listing his assets for a bank loan. Which item below should be listed with his assets?
farm truck
You have been showing hogs for several years. An example of a variable cost in your established show hog project is
feed.
Which of the following is not a fixed cost?
fertilizer
One use of short term credit might be for...
fertilizer applied to crops
A stated advantage of sole proprietorship compared to a corporation is:
fewer legal constraints
Ann was reviewing her old tax returns and discovered that she had made a mistake on her 1984 return and had over-paid her taxes that year. She should . . .
file an amended return.
Net worth is a measure of:
financial position.
The Net Worth Statement is the best measure of:
financial progress over a period of years
The money spent to do business. It does not vary with the level of production in the short run.
fixed cost
A farmer can usually separate his costs into variable cost and fixed costs. Which costs must be paid by the farmer even if nothing is produced?
fixed costs
No matter what enterprise is undertaken, _____________ must be paid. It does not vary with the level of production in the short run.
fixed costs
Total cost of producing a product equals:
fixed costs + variable costs
Which items are least readily converted into cash without loss?
fixed or long term assets
The time a check is in transit between the bank it was deposited at and the bank it was drawn on is called:
float time
In a partnership each partner can be held responsible...
for the total debts
You are a soybean producer and want to remove some of the risk involved. You could . . .
forward contract the beans
Sara wanted to remove some of their risk from her greenhouse business, so she...
forward contracted
Suzie signed a contract to sell her soybeans locally to a feed dealer. The best term for this transaction is ...
forward contracting.
An example of a variable cost of machinery operation would be...
fuel for the equipment
A contract calling for delivery of a carefully described commodity at some later time period is a(n):
futures contract
An agreement to buy and receive or to sell and deliver a commodity at an upcoming date with certain specified characteristics is a:
futures contract.
At the end of a sale day, Joey's roadside market had received $687.00 from produce sales. This was...
gross receipts
Net cash income is:
gross receipts minus cash expenses (operating and fixed)
Hedging does all the following except...
guarantees a profit to the producer
Hedging does all the following except:
guarantees a profit to the producer.
You are hired by a bank to determine if Bob Smith's Orchard is over capitalized. You report to the bank that yes, he is over capitalized. In other words Smith...
has more production assets than is really required for his operation
Which of the following is NOT a futures trading term?
haw
If a farmer sells his livestock and machinery and produces nothing on his land, then...
he would still have fixed costs
Another name for forward pricing with futures contracts is...
hedging
The process of using futures contracts for forward pricing is called...
hedging.
If you apply for a second mortgage on your farm and the prime rate is the same as when you obtained the first mortgage, the interest rate for the second mortgage is likely to be than the interest rate of the first mortgage?
higher
Just before John planted his peanuts, there was a severe drought and he has decided not to plant at all this season. John stands to lose
his fixed costs
From which of the following can you make the best determination as to the financial status of a person?
his net worth
Which of the following is a commodity traded on the futures market?
hogs
The producer of a commodity which has an inelastic demand knows that:
if less is produced by the industry, total industry revenue will increase.
A purchase made on a whim without using a decision-making process is a(n) ____.
impulse purchase
In a free market, the role of price is to serve as a guide:
in the decision of what, when, and the quantity to produce
Industrial unions like the United Auto Workers are examples of
inclusive unions.
A budget predicts
income and expense.
Form 1040 schedule F is a/an .
income tax form for farmers
As an individual ages, the cost of a term life insurance policy would be likely to :
increase
Assume that the government passes a law forbidding banks to foreclose on financially stressed farms to recover their loans. A likely effect of this law would be to cause interest rates charged to all farmers to:
increase
Advertising is designed to:
increase demand.
A poultry producer is producing 100,000 broilers a year, but after determining he was in stage I of production he decided he needed to. This would allow him to maximize his profit.
increase his flock to a number greater than 100,000.
When supply decreases, the equilibrium price and quantity will
increase in price, decrease in quantity.
When supply increases, the equilibrium quantity will
increase.
An increase in the price of beef and pork will likely result in:
increased consumption of poultry
When a farmer increases his investment in land, buildings, and equipment without increasing the total units of production, the cost per unit of production:
increases
When there is a greater demand for a product than there is supply of that product, the price...
increases
Successful advertising:
increases demand for the product advertised.
In the long run, as the price of corn increases the supply:
increases.
Producers can diversify or specialize in their production. When producers diversify they are trying to manage some of their risk. When specializing they are:
increasing efficiencies in the enterprise.
If the price of a product increases and the demand does not change, the demand for the product is said to be:
inelastic
Since there is no substitute for food; as a whole, the demand for agricultural products tend to be:
inelastic
When the change in price is greater than the relative change in quantity taken, an agricultural commodity is said to be:
inelastic
Which of the following should not have been listed on Sam's inventory?
insurance premiums
Accrued interest on a balance sheet refers to:
interest that has accumulated since the last loan payment
One example of a current asset is (a) ________.
inventory held for sale
A physical account of all assets in a business is called a(n) ...
inventory.
Variable costs may also be called:
operating costs
Maynard worked for his father during the summer instead of a job offered to him at the feed store. The income he gave up at the feed store was a/an cost
opportunity cost
Sidney could have invested his $10,000 at 10% interest at a local bank but instead invested in a peach orchard. The 10% interest he gave up was a/an...
opportunity cost
The income that could have been received if the input had been used in its most profitable alternative use is called:
opportunity cost.
The return an input would have earned in its best alternative use is called its:
opportunity cost.
The common types of ownership does not include...
owner-equity
A budget to determine if holding hogs to a heavier weight would be profitable is termed a(n)
partial
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?
partial
A financial tool that would be used to compare the feasibility of raising turkeys to 25 pounds vs. 20 pounds is a:
partial budget
A step-by-step process for identifying all the costs and returns that change due to alterations in one or more of the production processes is a(n):
partial budget
A statement of projected costs and returns associated with some change in the normal operation of the business is called a(n)...
partial budget.
Suppose John Brown has 100 acres of cropland. He wants to plant it in corn and soybeans. To decide what ratio of corn and beans will give him the most returns he should use a:
partial budget.
A ___________ is two or more persons who, as co-owners, operate the business.
partnership
Which of the following market structures best describes the market in which an American wheat farmer operates?
perfect competition
Which of the following is not a depreciable asset for a nurseryman?
pots
The principle components of an agricultural commodity option include...
premium price, underlying futures price, strike price, short-term interest rate and expiration date.
A depreciation schedule should not include:
present market value
The demand curve shows the relationship between...
price and the quantity demanded
The demand curve shows the relationship between:
price and the quantity demanded
If one of the major soybean producing countries other than the U.S. has a drought this year and soybean production is drastically reduced, what effect if any, will this probably have on the price of soybeans in Georgia?
prices will go up.
Vikki placed $3,000 into a certificate of deposit for a one-year period of time. At the end of the year she had earned an additional $200 on her initial investment. The original $3,000 is known as ____.
principal
Price received per bag - $5.00"
produce if no alternative crop is available
The elasticity of supply measures the response of a change in price on:
production
The excess of returns over expenditures is known as _________.
profit
An advantage of making an estate the beneficiary of a life insurance policy is to:
provide liquid funds to satisfy tax liability.
Which is considered an intermediate asset?
sows for breeding
Mr. Brown is the owner of the local hardware store. He does not farm but likes to buy and sell in the futures market. He is a...
speculator.
Hedgers and speculators in the futures market are different in that...
speculators do not produce a product to sell.
A major goal of diversified farming is to:
spread risk among several enterprises.
Which of the following is most closely related to achieving "economies of size?"
spreading out fixed costs
Storage of a product has the following effects...
stabilizes price and regulates supply
Income taxes are paid to the:
state and Federal governments.
A share in the ownership of a corporation is called a
stock.
The price of a commodity is basically determined by the ...
supply and demand for the product.
The total quantity of goods and services produced is called...
supply.
Price is determined largely by the supply and demand of products. If the government fixes the price above the equilibrium point of the supply and demand curve, a _________ will result
surplus
Agricultural producers such as one who produces soybeans are best described as price:
takers
An IRA is a...
tax sheltered retirement plan.
Fixed costs in the operation of an agricultural production business would include...
taxes, depreciation, interest and insurance.
Which type life insurance is likely to have the lowest monthly premium?
term
A person who is heavily in debt and has young dependents should consider ______________ for maximum protection at minimum cost.
term life insurance
An advantage of a family farm business structured as a corporation is:
that personal liability may be avoided
The organization in charge of monetary policy is
the Federal Reserve System.
When prices increase consumers buy less. This is called
the Law of Demand.
Liquidity is best defined as:
the ability to meet cash obligations as they come due
Liquidity is best described as:
the ability to meet cash obligations as they come due.
Commercial fertilizer should be applied to a crop as long as
the added fertilizer returns more than the added cost of the fertilizer
A major obstacle to starting a farming operation is...
the amount of capital required
The optimal amount of pollution is
the amount where the marginal benefits equal the marginal costs of pollution.
When a loan is secured, it means that:
the borrower has put up property worth as much or more than the principle of the loan.
Mr. Flanders is currently growing corn on a 40 acre tract of land. He plans to use a partial budget to determine if soybeans will be more profitable. Which of the following items would not be included in the partial budget.
the cost of the land.
Mr. Jones is currently growing cotton on a 40 acre tract of land. He plans to use a partial budget to determine if soybeans will be more profitable. Which of the following items would not be included in the partial budget?
the cost of the land.
Opportunity costs are:
the cost of using a resource in one way based on the return that could be obtained from using it in the best alternative way
A soybean producer is attending a class on soybeans in the futures market at the Vocational Agriculture department. He hears the term "basis" in the discussion. "Basis@ is . . .
the difference between the local cash price and the futures price
Capital gains is ...
the gain or loss from the sale of capital assets.
Capital gains is:
the gain or loss from the sale of capital assets.
If government spending is greater than tax receipts, then
the government has a budget deficit and will have to borrow money.
Where would the farm business profit for a year be found?
the income statement
Charles found that he could reduce the fixed cost per bushel of wheat by increasing his acreage. His fixed cost per bushel was $32 on a 10 acre operation, $16 on a 20 acre operation, $8 on a 40 acre operation, $4 on an 80 acre operation, $2 on a 160 acre operation, etc. Charles was experiencing:
the principle of economy of scale
Inflation means:
the purchasing power of a dollar declines over time
A person's estate is...
the total value of their real and personal property.
Why do farmers generally have no control over prices?
there are many sellers competing in the market relative to the number of buyers
A cash lease is good for livestock grazing because it is simple, and reduces the chance of controversy. Frank uses a cash lease when he leases grazing land. He and the landowner set a fixed price per acre when they make their deal. This is the most common type of cash lease. The landlord may prefer the cash lease because:
there is fixed rent
Goals are important in farm management because:
they give direction in decision making.
Gail and her fellow producers often base their price expectations on past price levels. If prices are higher in one year, then they probably will increase production the next. Then the supply will increase and prices will fall. If there is an increase in demand the prices will:
this cannot be determined based on the data given
In a production function, levels of production are divided into:
three stages called I, II, and III
A good use for cash flow planning is:
to obtain a loan for operating capital.
The most important reason for a complete farm record keeping system should be:
to provide information for farm management decision-making.
A business is solvent if...
total assets exceed total liabilities
A business is solvent if:
total assets exceed total liabilities
The difference between net worth and total assets is:
total liabilities.
The "gross sales" of an operation is defined as:
total sales before any expenses are subtracted.
Which of the following is (are) an intermediate asset?
tractor
The is designed to prevent sudden drastic price declines or rises in the futures market
trading limit
A legal document by which a property owner transfers the title of his land to someone to manage and safeguard for the benefit of beneficiaries is a:
trust.
If the price and consumption of beef goes up then the demand for beef must be .
up
What factor might increase the demand of U.S. wheat
wheat crop failures in Argentina and Russia
There are three kinds of budgets. Which of the following listings has them ranked from the most to least comprehensive?
whole farm, enterprise, partial
A legal statement of a person's wishes concerning the disposal of property after death is a(n):
will
A producer who says, "I'll grow cotton in the short run", probably means he:
will grow the current crop, but then find an alternative crop to produce
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?
with a second mortgage
The funds available to purchase inputs and inventory items after the sales of current farm assets and payment of all current farm liabilities is known as:
working capital.
Why is automobile insurance more expensive for the 16-19 year old group than for the 26-29 year old group?
young people tend to have more accidents
Suppose you go to a bank to get a loan. If you are asked about your equity you tell them about...
your assets minus your liabilities
In competitive markets, the long-run economic profit is
zero.