Farm Management Exam #2

Math: Assume cash basis revenue is $90,000. Beginning inventory was $30,000 and ending inventory was $50,000. Beginning accounts payable was $15,000 and ending accounts payable was $25,000. What would be the accrual basis revenue?

$110,000

Assume you purchase a new combine for $300,000. You expect to keep it for 5 years and estimate its salvage value at the time to be $80,000. What would be the depreciation expense for the second year if you used the double declining balance method?

$72,000

An organized list of all accounts used by an accounting system is called?

A chart of accounts

Any item(s) of value is/are called?

Assets

A fiscal accounting period is one which?

Ends on any date other than December 31

A balance sheet using cost-based valuation will always have a higher owner equity than it would if market-based valuation methods had been used.

False

An accounting system only needs to be able to record those transactions which are part of the farm's production activities.

False

Book value and market value will always be the same dollar amount.

False

Cash accounting will always show a lower profit than accrual accounting.

False

If total asset value increases, owner equity will also increase.

False

Market livestock and inventories of stored grain are non current assets on a balance sheet.

False

Market value is the most conservative valuation method to use during periods of inflation.

False

Market value will generally result in a lower value than other valuation methods, particularly during periods of high inflation.

False

On a cost basis balance sheet, owner equity will increase if land values increase

False

Records are of no use when trying to obtain a loan.

False

The accrual method of accounting is easier to use than the cash method.

False

The basic accounting equation is Assets + Liabilities = Owner Equity.

False

The market value of an asset can not be less than its book value.

False

The primary purpose of a balance sheet is to measure and record net farm income.

False

Total liabilities can not be greater than total assets.

False

Working capital is one measure of solvency.

False

If a business has working capital greater than $0, its current ratio will be?

Greater than one

A prepaid expense is one where payment is made?

In an accounting period prior to the one in which the item will be used to produce income

Using double entry accounting, transactions can be posted to which accounts?

Income, expense, asset, and/or liabilites

The best description of a business which has increased its debt/asset ratio is one which has?

Increased its debt relative to total assets

Which of the following can not be valued using the cost less accumulated depreciation method?

Land

Which of the following is an example of a non current liability?

Loan on farm machinery

A lender would usually prefer to have farm assets valued at their __________ value on a balance sheet that is part of a loan application.

Market

Another name for a balance sheet is?

Net worth statement

If $50,000 cash on hand is used to pay a $50,000 operating loan then on the day of the transaction?

Net worth will not change but the current ratio will

Using $20,000 in cash and a new loan of $80,000 to purchase land for $100,000 will cause equity to?

Not change

A depreciable asset's book value will equal its salvage value

Only at the end of its useful life

Selling grain from storage would be which type of farm business activity?

Operating

When something is purchased and paid for in a year before it will be used to produce income it is called?

Prepaid Expense

The Farm Financial Standards Council (FFSC)

Recommends uniform procedures and standards for preparing farm financial statements

The degree to which a farm's assets adequately cover or exceed its liabilities is referred to as?

Solvency

The 'cost value' shown on a balance sheet for an asset such as a tractor is equal to?

The original purchase price less depreciation expense take to date

A depreciation schedule is a necessary part of a complete accounting system.

True

A negative owner's equity indicates an insolvent business.

True

A ranch business with a debt/asset ratio of 0.20 would be in a relatively strong financial condition.

True

A single-entry system does not maintain current values for assets and liabilities.

True

All depreciation methods will result in the same total depreciation over the full life of the asset.

True

At the end of a depreciable asset's useful life, its book value will equal its salvage value.

True

Book value will equal salvage value at the end of the asset's useful life.

True

Changes in inventory value are not included in a cash accounting system.

True

Current liabilities are debts which must be paid in full within one year from the date of the balance sheet.

True

Inventories of grain and feeder livestock would be valued at market on either a cost or market basis balance sheet.

True

Most farmers and ranchers use the cash method of accounting.

True

Non current assets have a useful life of more than one year.

True

On a cost basis balance sheet, machinery would be valued at cost less accumulated depreciation.

True

The three major components of a balance sheet are assets, liabilities, and owner's equity.

True

A 'contingent' or 'deferred' income tax liability is one that?

Would be owed if and when an asset is sold

The 'cost' value of farmland can change due to?

the cost of nondepreciatable improvements made such as terraces and earthen dams

The total depreciation over an asset's useful life is equal to?

Cost - Salvage Value

Of the following which is the most liquid asset?

Balance in checking account

Which financial statements cover only a single point in time rather than a period of time?

Balance sheet

The proper term for the value found by subtracting accumulated depreciation from the asset's original costs is?

Book value