FBM 1-99
The liability of an owner in a corporation is limited to: a) All debts and obligations of the corporation up to the amount of his investments in the corporation b) A maximum of $50,000 c) All debts and obligations of the corporation d) Has no liability for debts and obligations of the corporation since it is a separate legal entity
a) All debts and obligations of the corporation up to the amount of his investments in the corporation
A constant payment loan with payments consisting of principal and interest is called: a) An amortized loan b) A discounted loan c) A capital loan d) A complementary loan
a) An amortized loan
To estimate the costs, returns, and cash flows associated with producing one acre of wheat, a farmer would use: a) An enterprise budget b) A whole farm budget c) A net worth statement d) A graph of supply and demand
a) An enterprise budget
Which of the following would be considered a current liability? a) An unpaid feed bill b) Mortgage on the land c) A five year loan to buy breeding cattle d) Three-year loan on a pickup
a) An unpaid feed bill
A complete list of farm business assets and the values assigned to each is called a: a) Balance sheet or net worth statement b) Income statement c) Inventory d) A deprecation schedule
a) Balance sheet or net worth statement
One of the most important points to consider in developing a lease between a tenant and a landlord is that it should: a) Be in writing b) Specify te soil description c) State the type of crops to produce d) Be an oral agreement
a) Be in writing
A wheat farmer did some on-farm research with fertilizer response. He applied 100 lbs. of fertilizer per acre and got a yield of 40 bushels per acre. Where he applied 150 lbs. of fertilizer his yield was 42 bushels, and where he applied 200 lbs. his yield was 43 bushels per acre. What he observed illustrates the principle of: a) Diminishing marginal returns b) Increasing marginal returns c) Marginal costs d) Marginal revenue
a) Diminishing marginal returns
A taxpayer may elect to use the MACRS straight-line instead of the regular MACRS. If he does he must use this recovery period for all personal property in this class. A taxpayer might desire a twelve year life compared to a seven year life when his income is a) Low b) High c) About average d) Unusually high
a) Low
Certain farm expenses are deductible for income tax purposes while others are not. Select the following list in which all items represent deductible farm expenses. a) New tires for tractor, veterinary, combine repairs, interest on cattle loan b) Vacation expenses, principal payment on farm loan, purchase of a new tractor c) Cost of a new barn, purchase of stocker steer, new motor for combine d) None of the above
a) New tires for tractor, veterinary expenses, combine repairs, interest on cattle loan
A limited partner CANNOT: a) Participate in management b) Contribute capital c) Have limited liability d) Share in profits
a) Participate in management
Todays farmer has many types of insurance policies, including life insurance, property damage, fire insurance, and health insurance. When a farmer insures, he is: a) Paying a small amount to have the risk transferred to another person or institution b) Paying a small amount to guarantee he will not be subject to any risk and possible danger c) Convinced that attorneys and legal proceedings are not necessary d) Reducing his costs of production and assuring a smooth transfer of the business to the next generation
a) Paying a small amount to have the risk transferred to another person or institution
Farm business expenses are classified as ordinary and necessary costs of operation a farm and are deductible for tax reporting purposes. Which of the following is NOT an expense of an unincorporated farm or ranch? a) State and federal income taxes b) Crop insurance premium c) Repair and maintenance costs d) All of the above are farm business expenses
a) State an federal income taxes
Mr. Jones is currently growing wheat on a 40 acre tract of land. He plans to use a partial budget to determine if barely will be more profitable. Which of the following items would not be included in the partial budget? a) The cost of the land b) Production costs for wheat c) Production costs for barley d) Winter grazing from each crop
a) The cost of the land
A written agreement by which an owner of property transfers the title to someone to manage and safeguard for the benefit of beneficiaries is a: a) Trust b) Partnership c) Corporation d) Sole proprietorship
a) Trust
The type of insurance which builds up a cash value and which may be used as a source of loans to policy holders is: a) Whole life insurance b) Crop insurance c) Term insurance d) Property insurance
a) Whole life insurance
Mr. Jones plans to buy a new tractor that has a purchase price of $30,000. HIs dealer will finance the tractor under the following terms: 20% down payment with the balance repaid in equal annual payments over the next 3 years. The interest rate is 15% per year. How much interest will Mr. Jones pay in the first year of the loan? a) $3,000 b) $3,600 c) $4,000 d) $5,000
b) $3,600
Which of the following is NOT an advantage of a crop share lease to a tenant? a) Price and yield risks are reduced b) A high yield or an exceptionally good crop price may occur c) Less cash and credit are needed d) The landlord will share some variable production expenses
b) A high yield or an exceptionally good crop price may occur
In order to borrow funds from the Farmers Home Administration, a producer must: a) Become a meter of this cooperative through purchase of type B stock b) Be unable to obtain sufficient credit elsewhere at reasonable rates and terms c) Have little chance of making the farm operation work d) Be young and just getting started in farming
b) Be unable to obtain sufficient credit elsewhere at reasonable rates and terms.
In preparing for a cash flow plan for the coming year, a farmer estimates that total cash inflows exceed total cash outflows for the month of July. This indicated that: a) The operating loan will likely increase during the month of July b) Cash will be available to reduce the operating loan in July c) Family living expenses should be reduced during the month of July d) Net farm income will be higher than last year
b) Cash will be available to reduce the operating loan in July
Variable costs are best defined as those costs which: a) Necessarily increase because of inflation b) Change when the level of production changes c) Are increased when a new tractor is purchased d) Are associate with repaying loans
b) Change when the level of production changes
A cash flow statement is used for which of the following financial purposes? a) Determine anticipated change in net worth b) Determine the amount for funds available to service debt c) Determine net income for a given period d) Determine the optimum farm organization
b) Determine the amount for funds available to service debt
Variable costs change as the level of production changes. Fixed costs are incurred even without production. For a cattle feeder, which of the following is a fixed cost? a) Labor b) Feed bunks c) Grain d) Cattle
b) Feed bunks
In most crop enterprise budgets the cost of land is generally considered to be a: a) Cash cost b) Fixed cost c) Operating cost d) Parity cost
b) Fixed cost
What things does a lender try to learn about a prospective borrower from the credit bureau? a) Whether or not he keeps his machinery in good repair b) His or her past repayment history and credit difficulties c) Whether he has any financing statements filled in the country clerk's office against ay of his personal business property d) What the borrowers net worth is
b) His or her past repayment history and credit difficulties
Which of the following is NOT a principle used in making insurance decisions? a) Insure against losses which may result in financial disaster b) Insure against all events which may result in losses c) Never insure again losses which you can pay without undue personal stress d) Insure to substitute a small certain cost for a larger uncertain cost
b) Insure against all events which may result in losses
Under the discount method for calculating interest: a) Interest is charged on the actual amount of money outstanding b) Interest is calculated on the total amount of the loan and then subtracted from the principal balances c) Interest is charged on the original loan amount and added to the principal balance d) Interest is calculated and paid at the end of the loan repayment period
b) Interest is calculated on the total amount of the loan and then subtracted from the principal balance
A primary reason for setting up a corporation is: a) Ease of formation b) Limited liability c) Simplicity of operation d) Low cost of formation
b) Limited liability
The effect of overestimating the ending corn inventory for 19x1 by $2,000 (assuming all other records are correct) is: a) Cash expenses are understated by $2,000 in 19x1 b) Net farm income for 19x1 is overstated by $2,000 c) Ending net worth is understated by $2,000 for 19x1 d) 19x0's net farm income will be overstated by $2,000 (assuming all ending inventory records are correct for the following year)
b) Net farm income for 19x1 is overstated by $2,000
Another term for owner's equity (the amount the owner has invested in the farm) is: a) Leverage b) Net worth c) Liquidity d) Feasibility
b) Net worth
An association of two or more individuals who as co-owners carry on a business for a profit is a: a) Trust b) Partnership c) Corporation d) Sole proprietorship
b) Partnership
When a borrower puts up collateral to obtain a loan he: a) Promises to pay a set amount each period b) Pledges property to secure the loan c) Requests a self liquidating loan d) Requests a risk premium on the loan
b) Pledges property to secure the loan
In making loans to farmers and ranchers life insurance companies: a) Provide a full range of loans including short-term operating loans, intermediate term loan, and long-term real estate loans b) Primarily make long-term real estate loans c) Do not currently have any money loaned to farmers or ranchers d) None of the above
b) Primarily make long-term real estate loans
Which of the following statements correctly describes the first year's payment on $9,000 loan on which the principal is to be repaid in 3 equal installments with the interest charged at 10%? a) Principal = $4,500, Interest = $900 b) Principal = $3,000, Interest = $900 c) Principal = $6,000, Interest = $300 d) Principal = $6,000, Interest = $600
b) Principal = $3,000, Interest = $900
With limited capital, a farm operator would tend to invest his available capital in: a) Long-term land improvements b) Quick turnover operations c) New machinery and equipment d) Labor-saving equipment
b) Quick turnover operations
Crop insurance provides a means of: a) Lowering costs b) Reducing risks c) Increasing profits d) Increasing working capital
b) Reducing risks
The major advantage of renting or leasing over purchasing machinery is to: a) Reduce income taxes b) Release capital for another use c) Increase depreciation allowances d) Improve output per worker
b) Release capital for other uses
Which would not be listed on the income statement? a) Sale of manure at $5.00/ton b) Self labor at $4.50/hour c) Sale of hogs weighing 225 lbs. each at $40.00/cwt. d) Marketing changes of $2.00/cwt. of hogs sold
b) Self labor at $4.50/hour
Mr.Moore has already spent $4,000 on his apple orchard this year for sprays, pruning, and fertilizers. He has a bumper crop of 1,000 bushels of apples which he expects to market for $5.00 per bushel. He can have his apples picked by a crew for $2.50 per bushel. Or, he can let the public pick the apples for $4.00 per bushel. What should Mr. Moore do with his apples this year? a) Leave the apples on the trees since he will lose money anyways b) Sell his apples to the public on a pick-it-yourself basis c) Hire a labor crew to pick the apples d) Use the labor crew for half the orchard and let the public pick the other half
b) Sell his apples to the public on a pick-it-yourself basis
The objective of good tax management is to maximize after-tax net income. Which of the following is NOT a sound tax management strategy? a) The use of income leveling strategies b) Tax evasion c) The use of the cash method or accrual method of accounting d) Tax avoidance
b) Tax evasion
Solvency refers to: a) The financial ability to meet current obligations b) The financial ability to cover all debts should the owner have to sell out c) The capacity of an asset to be used for more than one purpose d) Total liabilities plus net worth
b) The financial ability to cover all debts should the owner have to sell out
Which financial statement measures the profitability of the business? a) The balance sheet b) The income statement c) The cash flow statement d) All of the above
b) The income statement
The opportunity cost of an investment in new farm equipment is associated with: a) The amount of income that new equipment will generate b) The income that could have been obtained by using the investment expenditure in its next most profitable activity c) The lost opportunity to spend more money on clothes and vacations d) The increase in farm income generated by the new equiptment minus the costs of operating it
b) The income that could ave been obtained by using the investment expenditure in its next most profitable activity
With a crop share lease: a) The tenant pays all the expenses and pays the landlord a specified cash rent per acre b) The landlord and tenant share both production and market risks c) The landlord pays all the production expended and shares the income received from the sale of crops with the tenant d) Crop share leases are not used by farmers
b) The landlord and tenant share both production and market risks
Historically, individual have held about 15% of the total outstanding farm debt. Which of the following are characteristics of loans made by individuals? a) They are primarily short-term farm or ranch operating loans b) They are primarily long-term loans to finance the purchase of real estate c) The IRS will let the individual charge as low as an interest rate as he wants without penalty d) All of the above
b) They are primarily long-term loans to finance the purchase of real estate
Which of the following is not a reason that merchants and dealers offer credit to their customers that are farm or ranch operators? a) They hope to generate a profit on credit sales b) They enjoy making out bills and sending them to their customers c) They hope to improve the seasonal distribution of their sales d) Provide a convenience to their customers
b) They enjoy making out bills and sending them to their customers
Which of the following statements concerning a cash flow statements is INCORRECT? a) Total cash inflow = receipts from sale of products + receipts from sale of breeding livestock + wages from off-farm employment b) Total cash outflows = payments for operating inputs + long and intermediate loan payments - depreciation expense c) Cash position = total cash inflows - total expenditures d) Monet borrowed = cash position - minimum acceptable cash balance
b) Total cash outflows = payments for operating inputs + long and intermediate loan payments - deprecation expense
Which one of the following is a valid use of a cash flow budget for a farm or ranch business? a) Determining net income b) Securing credit for the farm operation c) Measuring the financial growth of the farm business d) Determining the owners net worth
b) securing credit for the farm operation
A farmer can earn $60 per acre growing corn, $50 per acre growing cotton, and $40 per acre growing wheat. The opportunity cost of growing wheat is: a) $40 per acre b) $50 per acre c) $60 per acre d) The value of the farmer's labor in each of these crops
c) $60 per acre
A farmers net worth statement showed the following balances: *Current Assets= $20,000 *Current Liabilities= $20,000 *Fixed Assets= $180,000 *Long Term Liabilities= $80,000 What percent equity does the farmer have in his operation? a) 75% b) 25% c) 50% d) None of the above
c) 50%
If you need to borrow to finance annual farm operating expenses, the most likely lender would be: a) A Federal Intermediate Credit Bank b) A life insurance company c) A commercial bank d) The Bank for Cooperatives
c) A commercial bank
Which item should NOT be included in a cash flow projection? a) Anticipated income from non-farm sources b) Estimate of family living expenses c) Anticipated depreciation expense on equipment d) Cash received from sale of tractor which is no longer being used
c) Anticipated depreciation expense on equipment
A farmer using the cash basis of accounting for tax purposes was facing unusually high federal income taxes for 19x1. Which of the following actions during the last week of 19x1 would reduce his income taxes under the cash basis? a) Sell 100 head of stocker cattle b) Forward contract his cattle for sale in March, 19x2 c) Buy additional feed d) Nothing can be done to reduce his tax
c) Buy additional feed
The main importance of capital gains is that: a) It is non-taxable income b) It is used in computing investment credit c) Capital gains income is in a operate class for taxation purposes d) It is deducted from taxes due
c) Capital gains income is in a separate class for taxation purposes
Sole proprietorship have all the following advantages EXCEPT: a) Business can be quickly expanded or contracted b) Concentration of management c) Continuity of management over a long period d) Ease of formation
c) Continuity of management over a long period
Which business organization structure establishes the limit on liability of investors so that assets of investors cannot be encumbered beyond investment? a) Cooperative b) General partnership c) Corporation d) Sole proprietorship
c) Corporation
Typically, fixed costs are those that: a) Cover such items as feed, seed, fertilizer, and fuel b) Do not increase at more than the rate of inflation c) Do not change when the level of production changes d) Are paid by the government
c) Do not change when the level of production changes
A partial budget is used to: a) Estimate the costs and returns for producing one unit of a crop activity b) Determine the taxes which must be paid on last years income c) Estimate the change in net income which will occur due to a change in a part of the farm d) All of the above
c) Estimate te change in the net income which will occur due to a change in a part of the farm
Assume a cattle producer is feeding a ration of corn, milo, soybean meal, and alfalfa hay. If the price of corn increases by 30%, he should: a) Continue his present ration b) Increase the total ration c) Feed less corn d) Feed less milo
c) Feed less corn
Referring to fixed costs such as insurance and taxes and variable costs such as feed and fertilizer, which of the following costs must be paid by the farmer if nothing is produced? a) Both variable and fixed costs b) Variable costs c) Fixed costs d) Neither variable nor fixed costs
c) Fixed costs
The income statement is a very valuable financial statement that can provide information on: a) The time during the year when cash will be received and when bills will have to be paid b) Farm operating debt requirements an repayment capacity c) How profitable the business has been during the past year d) Net worth of the farm business
c) How profitable the business has been during the past year
A whole-farm budget: a) Is designed primarily for use in determining whether changes considered in the farm will be profitable b) Is set up to plan a portion of the entire farm business organization c) Is a plan for using the physical and financial resources of the entire farm business and estimates the resulting net income d) Is a statement of what generally is expected from a particular production practice when producing a specified amount of product.
c) Is a plan for using the physical and financial resources of the entire farm business and estimated that resulting net income
The farm manager should continue to add units of an input to the point that the value of the resulting output: a) Is equal to the overhead cost b) Is equal to the value of the time involved in making the decision c) Is equal to the added costs d) Is equal to zero
c) Is equal to the added costs
One advantage go leasing is that: a) Lease payments are tac deductible while interest payments are not b) Leasing provides a larger deduction for deprecation c) Leasing does not require as much capital d) Investment credit can be used for leasing
c) Leasing does not requires much capital
Assume a farmers cow-calf operation is unprofitable and therefor the capital is tied up in his cows could be invested in stocks, bonds, land, or some other asset. This illustrates the principle of: a) Marginal cost b) Fixed cost c) Opportunity cost d) Variable cost
c) Opportunity cost
Which of the following is the most likely credit source for a loan to buy feeder calves or pigs? a) Life insurance company b) Federal Land Bank c) Production Credit Association d) Savings and Loan Institution
c) Production Credit Association
Which of the following is most likely to be a fixed cost? a) Expenditures for raw materials b) Wages for unskilled labor c) Property insurance premiums d) Shipping charges
c) Property insurance premiums
Under the Modified Accelerated Cost Recovery System (MACRS) of deprecation the recovery period for new machinery compared to used machinery is: a) Greater b) Less c) Same d) Optional
c) Same
A cash flow plan: a) Should include farm cash inflows and outflows, but exclude family living requirements b) Should include family living expenses, but exclude principal and interest payments of debts against the farmland c) Should include farm cash inflows and outflows, family living requirements, and principal and interest payments on debt d) Should include family living requirements and debt payments, bit exclude farm cash inflows and outflows
c) Should include farm cash inflows and outflows, family living requirements, and principal and interest payments on debt
Commercial fertilizer should be applied to crops as long as: a) The added returns increase gross farm income b) The added fertilizer maintains soil productivity c) The added returns are more than the added cost of the fertilizer d) The added fertilizer increases crop yields per acre
c) The added returns are more than the added cost of the fertilizer
The farm business profit for a ear would be found on: a) The balance sheet b) The cash flow budget c) The income statement d) A partial budget
c) The income statement
A security agreement reduces the risk of a loan for: a) A borrower b) The salesman c) The lender d) Internal Revenue Service
c) The lender
Which of the following is the primary purpose of a current ratio? a) To determine net worth b) To include it on your tax return c) To determine your ability to meet immediate financial obligations d) To aid in evaluating your farm profitability
c) To determine your ability to meet immediate financial obligations
Mr. Landlubber is considering purchasing a parcel of land. He decided to use the adjusted income capitalization approach to estimate the lands worth. He estimated the annual net income to the land to be $19,000 and his opportunity cost of capital is 10%. How much could he pay and realize a return equal to his opportunity cost of capital? a) $190 b) $1,900 c) $19,000 d) $190,000
d) $190,000
If Mr. or Mrs. B. Angus Breeder have liabilities totaling $540,000 and claim net worth of $750,000, what is their debt/equity ratio? a) 2.06:1 b) 1.39:1 c) 0.55:1 d) 0.72:1
d) 0.72:1
One of the best measures of financial progress over a period of years would be: a) Income tax paid b) Capital investment c) Net cost income d) A series of balance sheets
d) A series of balance sheets
Which of the following statements concerning partial budgeting is true? a) Partial budgeting may be used to develop a whole farm plan b) Added returns and added costs are assumed to determine the total additional income from a proposed change in the farm business c) Partial budgeting is a whole farm planning tool d) Added costs and reduced returns are assumed to determine the total reduction of income from a proposed change in the farm business
d) Added costs and reduced returns are assumed to determine the total reduction of income from a proposed change in the farm business
Sources of information useful for developing a cash flow projection include: a) Crop and livestock enterprise budgets for the farm operation b) A farm plan showing the number of acres of crops and head of livestock planned for the year c) An estimate of family living requirements debt repayment commitments, and taxes d) All of the above
d) All of the above
Which of the following factors may indicate to the lender that he has a problem loan? a) If the collateral pledged for a loan disappears b) If it is discovered that the borrower has provided fraudulent information on his balance sheet c) If the borrower is 3 months delinquent on a scheduled loan payment d) All of the above
d) All of the above
Which of the following have a say in policy and operating procedures of a Production Credit Association? a) Board of Directors b) Borrowers c) Federal Intermediate Credit Bank d) All of the above
d) All of the above
Which of the following human characteristics of a prospective borrower are important to a lender? a) Honesty b) Moral character c) Willingness to cooperate with the lender d) All of the above
d) All of the above
Which of the following loan terms may it be possible for the borrower to negotiate with the lender? a) The amount of the loan b) The interest rate c) The amount of collateral to be pledged d) All of the above
d) All of the above
Which of the following would be included in a whole farm budget? a) Cost of hired labor b) Interest payments on outstanding loans c) Total costs and returns associated with crop and livestock activities d) All of the above
d) All of the above
If cash uses exceed cash sources for a given month which of the following might a manager do? a) Postpone the purchase of a new machine he had planned to buy b) Reduce operating expenses where possible c) Sell some grain now that he had planned to keep in storage for a few more months d) All or any combination of the above
d) All or any combination of the above
A loan to purchase a tractor is often called: a) A short term loan b) A mortgage c) An operating loan d) An intermediate term loan
d) An intermediate term loan
The percent of profits that the landlord and tenant each receive from a livestock share arrangement should: a) Be as closely related to the crop base as possible b) Depend on the typical profits each has received in the past c) Depend on the quality of pasture d) Be based on the contribution of each party to the business
d) Be based on the contribution of each party to the business
Intermediate term loans would typically be made for each of the following except: a) Machinery b) Breeding cattle c) Pickup trucks d) Buildings
d) Buildings
Which of the following types of lease arrangements is least risky for the landlord? a) Crop-share lease b) Livestock-share lease c) Flexible rent lease d) Cash lease
d) Cash lease
The most formal, complex, and expensive method of organization to form is a: a) General partnership b) Limited partnership c) Sole proprietorship d) Corporation
d) Corporation
Which of the following is a variable cost? a) Real estate taxes b) Payments on farm equipment loam c) Interest on long-term debt d) Fuel costs
d) Fuel costs
Ownership costs of a tractor include all but which of the following? a) Depreciation on the tractor b) Insurance for the tractor c) Taxes on the tractor d) Fuel for the tractor
d) Fuel for the tractor
The farm corporation may have the following advantages relative to the sole proprietorship: a) Simpler to organize b) Tax savings for the one owner business with less that $15,000 net farm income c) Lower social security taxes for the owner-operator to pay on his salary d) Limited liability
d) Limited liability
When calculating the value of feed fed to livestock, home grown feeds should be valued according to: a) Cost of production b) Purchase price of the livestock c) Amount of gain the feed produced d) Market price
d) Market price
Which type of cash flow statement would be of greatest value to the manager of a diversified farming operation? (A diversified farm would have several non-related enterprises) a) Annual cash flow statement b) Semi-annual cash flow statement c) Quarterly cash flow statement d) Monthly cash flow statement
d) Monthly cash flow statement
Which of the following personal characteristics should NOT be considered when buying insurance? a) Age and family responsibilities b) Financial position and level of debt c) Personal feeling about taking risks d) None of the above
d) None of the above
Which of the following is not considered an ordinary farm business expense for tax purposes in the year it is paid? a) Repair and maintenance expenses b) Farm labor wages c) Interest paid on farm mortgages d) Purchase price of a new tractor
d) Purchase price of a new tractor
Which of the following is not a depreciable asset? a) Purchased breeding stock b) A residence used for hired workers c) A tractor you purchased d) Purchased farm land
d) Purchased farm land
When analyzing the profitability of a fare business, the first item to consider is this: a) Set of cropping practices b) Set of livestock enterprises c) Amount of machinery available d) Return to owned resources
d) Return to owned resources
The oldest and most widespread legal form of business organization is the: a) Trust b) Partnership c) Corporation d) Sole proprietorship
d) Sole proprietorship
The cash deficit or surplus on a cash flow statement is: a) The difference between net farm income and net farm expense b) The difference between the values of total assets and the value of total liabilities c) The amount available for family living expenses d) The difference between total monthly cash receipts and total monthly cash outflows
d) The difference between total monthly cash receipts and total monthly cash outflows
