2016 FBM Test

Question 1

The balance sheet represents the financial position of ABC Organic Farm

Answer 1

on the date of the balance sheet.

Question 2

One example of an account receivable for ABC Farm would be

Answer 2

the unpaid amount for custom work that has been completedfor you.

Question 3

Noncurrent assets are sometimes referred to as

Answer 3

A.intermediate and long-term assets.

Question 4

Net worth or owner equity refers to the

Answer 4

total assets and total liabilities.

Question 5

On a balance sheet, using market values for intermediate and long-termassets, thesources of owner equity (net worth) will include which of the following?

Answer 5

A.Contributed capital. B.Retained earnings. C.Valuation equity.

Question 6

Which of the following items contributed to a positive change in the 2015 owner equity? (There may be more than one correct answer.)

Answer 6

A.Net farm incomeB.Personal income

Question 7

On the balance sheet, total assets must equal

Answer 7

D.total liabilities plus net worth.

Question 8

When comparing cost and market balance sheets, marketvaluation is best described as

Answer 8

market value of intermediate and long-term assets minus cost value of intermediateand long-term assets.

Question 9

The principal due within 12 months on term liabilities represents

Answer 9

the amount of principal that must be paid onintermediate and long-term liabilities during the next accounting period.

Question 10

Gross cash income includes all of the following except

Answer 10

an increase in inventory value.

Question 11

The total inventory change found on the accrual adjustedincome statement for ABCOrganic Farmindicates that cash accounting

Answer 11

C.overstates the true net farm income.

Question 12

On the ABC Organic Farm income statement (R6), depreciation is calculated using

Answer 12

A.Machinery purchases and sales.B.The cost value of machinery assets from the balance sheet.

Question 13

The net farm incomereported for ABC Organic Farm on the income statementrepresents the return toA.

Answer 13

owner equity, unpaid labor and managemen

Question 14

Cash items on the income statement could represent which of the following?

Answer 14

D.All the above.

Question 15

The change in the size of the production loan for 2015

Answer 15

C.did not change accrual adjusted revenues for ABC Organic Farm.

Question 16

The primary purpose of the Statement of Cash Flows is toindicate

Answer 16

A.the sources and uses of cash.

Question 17

.In the 2015 Statement of Owner’sEquity, Page R7, net farm income is reported tobe $89,131.Family living expense and income taxes accrued are reported to be $95,106. If the change in retained earnings is limited to just these two items, retained earnings wil

Answer 17

C.decrease by $5,975

Question 18

The Statement of Owner’s Equitycan be used for which of the following?

Answer 18

A.Explaining the change in owner equity for the accounting period.

Question 19

The projected cash flows for 2016 indicate

Answer 19

D.B and C

Question 20

An enterprise budget is

Answer 20

a statement of projected costs and returns associated with one production process, usually for one production cycle

Question 21

If you are considering a change in the farm business that affectsonly a fewitems in the total farm budget, this change could most appropriately be evaluated using

Answer 21

B.a partial budget.

Question 22

When an increase in the level of production of one enterprise causes a reduction inthe level of production of another enterprise, thesetwo enterprises are said to be

Answer 22

C.competitive.

Question 23

If the farm business farms more acres, which of the following costs are least likelyto change?

Answer 23

C.Average variable costs per acre

Question 24

Budgets are constructed to show future actions. To improve the accuracy of abudget, the operator may use

Answer 24

D.All of the above

Question 25

6.Budgeting is not used to

Answer 25

B.help plan for the useful life ofassets.

Question 26

In analyzing the enterprise report for the 40-acre organic alfalfa haylage (R9),which factor, when compared to the areaaverage(R22),is most responsible for the negative return?

Answer 26

A.Yield per acre

Question 27

Which of the following statements is nota true statement about Cash Flow Projections?

Answer 27

Adequate “cash flow” assures a positive “projected net farm income”.

Question 28

Which of the following isnota true statement concerning the ABC Organic Farm’s proposed 2016 operating loan?

Answer 28

Since the projected ending cash balance is much greater than the beginning cash balance, an operating loan should not have been necessar

Question 29

The summary pageofABC Organic Farm’s 2016 Cash Flow Statement calculates some key liquidity and solvency measurements and ratios for the end ofthe projectedyear, and compares them to the beginning of the year. Which of the following is a truestatement

Answer 29

B.Both Liquidity and Solvency are projected to improve in 2016.

Question 30

Which of the following is a true statement concerning projected “Term Debt Coverage Ratio”?

Answer 30

Itis the relationship of payments due and dollars available to make them.

Question 31

What is the source of economic incentives that can stimulate production?

Answer 31

C.Price

Question 32

The best reason for producers to use technology is to

Answer 32

A.maximize profits

Question 33

In modern production agriculture it is important to remember that the producer is

Answer 33

B.a price taker

Question 34

If more farmers start to produce organic milk to the point of oversupply, the result is

Answer 34

B.a lower price.

Question 35

Ademand curve shows the relationship between quantity purchased and

Answer 35

price

Question 36

TheABC Organic Farm’smilk price, compared to non-organic area milk price, is

Answer 36

Higher

Question 37

When the market price falls below the cost of production of a commodity,this lowerprice may force the producer to

Answer 37

D.B and C

Question 38

Based on the spot bid for corn on Trend Chart A,farmers could have made how much per bushel if they were able to store their corn until January at Elevator A?

Answer 38

20 cents

Question 39

Based on Trend Chart B and given the four sites with new crop corn bids, which offered the best basis contract?

Answer 39

B

Question 40

In the short run what prompts most of the price variability in commodities?

Answer 40

C.Supply

Question 41

When a producer forward contracts his corn but later is concerned that a possible drought may cause the price to go much higher, what could he do to be able to take part in the possible price rally?

Answer 41

C.Purchase a call option

Question 42

The price that the producer in question #12acts on is called the

Answer 42

D.Strike price

Question 43

The person who makes transactions for farmers hedging is

Answer 43

broker

Question 44

How many bushels are in a corn futures contract?

Answer 44

5000

Question 45

An upward trend in market prices is referred to as a

Answer 45

B.bull market.

Question 46

A downward trend in market prices is referred to as a

Answer 46

aA.bear market

Question 47

The money on deposit to ensure performance of a futures contract is called

Answer 47

C.margin

Question 48

If ABC Organic Farm wanted to lock in the price that they would have to pay for soybean meal, they could

Answer 48

D.buy a call option

Question 49

When taking a position in which one has purchased futures contracts, the producer is said to be

Answer 49

B.long

Question 50

Ag exports generally have what effect on price?

Answer 50

Increase

Question 51

Ag commodities that trade on the futures market have daily limit moves.

Answer 51

True

Question 52

The marketing time frame for most grains is.

Answer 52

18 months

Question 53

Which of the following expenses should not be claimed as a deduction on a cash basisfarmer’s 2016 tax return?

Answer 53

C.Feeder pigs purchased 11/20/16 that will be sold in 2017

Question 54

1.The accumulated interest will actually be equal to one payment?

Answer 54

False

Question 55

The annual payment will vary year to year.

Answer 55

False

Question 56

The principal amount in each of the payments on this note will always be the same.

Answer 56

True

Question 57

What is principal

Answer 57

A.The actual amount of money borrowed from the lender.

Question 58

What is loan amortization?

Answer 58

C.Paying off debt with a fixed repayment schedule

Question 59

What is the length of time for the term on machinery loan?

Answer 59

D.Can be negotiated with the lender

Question 60

Interest is

Answer 60

.the cost of borrowing money

Question 61

f the note is carried in-house, it will be construed as a contract for ownershipbut will not appear on your balance sheet

Answer 61

False

Question 62

The interest amount on amortized loans will always remain the same during the life of the loan.

Answer 62

False

Question 63

Which of the following is an example of market risk that applies to ABC OrganicFarm?

Answer 63

D.Both A and C

Question 64

Which of the following is an example of legal risk?

Answer 64

A.A change in regulations surrounding milk production

Question 65

Which of the following best describes risk avoidance?

Answer 65

D.Ceasing an activity to eliminate the possibility of suffering a loss

Question 66

___________ is an example of risk transfer

Answer 66

A.An insurance policy

Question 67

A liquidity ratio is a measure of __________ risk.

Answer 67

financial

Question 68

If five farms have the following debt to asset ratios, which ratio indicates the greatest risk?

Answer 68

3.0

Question 69

Becoming an LLC can reduce the business owner’s __________ risk?

Answer 69

Legal

Question 70

Which of the following is anappropriate method of risk transfer for ABC Organic Farm’s human risk?

Answer 70

C.Workers’ Compensation Insurance

Question 71

A farmer who wants to establish a floor price for corn to be received at harvestwould do what?

Answer 71

Buy a put option

Question 72

When the futures price moves abovethe price that a farmer sold a futures contractfor, the farmer will receive

Answer 72

B.a margin call.

Question 73

Revenue protection coverage insurance protects against

Answer 73

A.adecline in price or yield

Question 74

A farmer decides to use the futures market to hedge the price of soybeans to besold at harvest. What should the farmer do to hedge the soybeans?

Answer 74

Sell futures contracts expecting to buy them back when the soybeans aresold.

Question 75

After the farmer is hedged in Question #11, what is the only factor that couldchange the price received?

Answer 75

C.A change in the basis.

Question 76

A farmer would use the futures market with the objective to

Answer 76

A.transfer risk

Question 77

When hedging, it is important that farmers close out both the cash and futuresposition

Answer 77

B.simultaneously when selling the crop

Question 78

To hedge using commodity futures, a farmer

Answer 78

C.A and B

Question 79

A farmer uses revenue protection insurance to protect a corn crop. This type ofinsurance would protect against

Answer 79

low yields and low prices.

Question 80

The yield portion of revenue protection insurance on land that the producer hascontinually farmed is based on

Answer 80

the farm’s actual production history of yields.

Question 81

The price portion ofrevenue protection insurance is based on

Answer 81

the futures market.

Question 82

Which of the following is not one of the steps in the risk management process?

Answer 82

D.Depreciate

Question 83

Which of the following risks should realistically be transferred?

Answer 83

A low frequency and high severity risk

Question 84

The most common form of farm business is a

Answer 84

sole proprietorship.

Question 85

The simplest association of two or more people to carry on business together is a

Answer 85

B.partnership

Question 86

A corporation as a legal entity would normally have a _________existence.

Answer 86

D.permanent

Question 87

In a Sub S Corporation, who can be a shareholder?

Answer 87

D.Individuals

Question 88

All are common factors of a C Corporation except

Answer 88

unlimited personal liability

Question 89

The transfer of ownership in a corporation is by the sale or gifting of

Answer 89

stocks

Question 90

The document creating a corporation is called

Answer 90

Articles of Incorporation

Question 91

The document creating a Limited Liability Company is called

Answer 91

Articles of Organization.

Question 92

In a corporation, the ownership relationship between the company and the ownersis expressed in terms of

Answer 92

shares

Question 93

Which of the following entities does not have pass-through taxation?

Answer 93

C Corporations

Question 94

The individual who creates a trust is called the

Answer 94

trustor

Question 95

The individual who manages a trust is called the

Answer 95

trustee

Question 96

When farmers are interested in a collective action to improve their economic well-being, they could form an entity that is member controlled with patronage dividends called a

Answer 96

cooperative.

Question 97

A form of ownership in which a person or organization manages property for thebenefit of someone else

Answer 97

trust

Question 98

Which of the following is nota disadvantage of a corporation?

Answer 98

Requires monthly meetings

Question 99

Which of these entities protects personal assets from legal action against a business?

Answer 99

Limited Liability Company

Question 100

A Sub S Corporation is like a C Corporation except it has

Answer 100

pass-through taxation

Question 101

Factors to consider when selecting a type of business organization include

Answer 101

All the above

Question 102

A Limited Liability Company is created by filing with the

Answer 102

Secretary of Statein the state of domicile.

Question 103

When two or more sole proprietors carry on some activities jointly while maintaining individual ownership of resources, they have

Answer 103

an operating agreement

Question 104

Working Capital is

Answer 104

the dollar amount that equals current assets minus current debt.

Question 105

The marginal cost is equal to the

Answer 105

change in the total cost divided by the marginal physical product

Question 106

The decision rule for profit maximization is

Answer 106

MR=MC