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Farm Business Management > 2016 FBM Test > Flashcards

2016 FBM Test Flashcards

1
Q

The balance sheet represents the financial position of ABC Organic Farm

A

on the date of the balance sheet.

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2
Q

One example of an account receivable for ABC Farm would be

A

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

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3
Q

Noncurrent assets are sometimes referred to as

A

A.intermediate and long-term assets.

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4
Q

Net worth or owner equity refers to the

A

total assets and total liabilities.

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5
Q

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

A

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

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6
Q

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

A

A.Net farm incomeB.Personal income

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7
Q

On the balance sheet, total assets must equal

A

D.total liabilities plus net worth.

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8
Q

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

A

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

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9
Q

The principal due within 12 months on term liabilities represents

A

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

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10
Q

Gross cash income includes all of the following except

A

an increase in inventory value.

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11
Q

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

A

C.overstates the true net farm income.

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12
Q

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

A

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

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13
Q

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

A

owner equity, unpaid labor and managemen

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14
Q

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

A

D.All the above.

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15
Q

The change in the size of the production loan for 2015

A

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

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16
Q

The primary purpose of the Statement of Cash Flows is toindicate

A

A.the sources and uses of cash.

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17
Q

.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

A

C.decrease by $5,975

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18
Q

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

A

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

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19
Q

The projected cash flows for 2016 indicate

A

D.B and C

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20
Q

An enterprise budget is

A

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

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21
Q

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

A

B.a partial budget.

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22
Q

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

A

C.competitive.

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23
Q

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

A

C.Average variable costs per acre

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24
Q

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

A

D.All of the above

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25
Q

6.Budgeting is not used to

A

B.help plan for the useful life ofassets.

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26
Q

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?

A

A.Yield per acre

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27
Q

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

A

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

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28
Q

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

A

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

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29
Q

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

A

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

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30
Q

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

A

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

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31
Q

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

A

C.Price

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32
Q

The best reason for producers to use technology is to

A

A.maximize profits

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33
Q

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

A

B.a price taker

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34
Q

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

A

B.a lower price.

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35
Q

Ademand curve shows the relationship between quantity purchased and

A

price

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36
Q

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

A

Higher

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37
Q

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

A

D.B and C

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38
Q

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?

A

20 cents

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39
Q

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

A

B

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40
Q

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

A

C.Supply

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41
Q

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?

A

C.Purchase a call option

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42
Q

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

A

D.Strike price

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43
Q

The person who makes transactions for farmers hedging is

A

broker

44
Q

How many bushels are in a corn futures contract?

A

5000

45
Q

An upward trend in market prices is referred to as a

A

B.bull market.

46
Q

A downward trend in market prices is referred to as a

A

aA.bear market

47
Q

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

A

C.margin

48
Q

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

A

D.buy a call option

49
Q

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

A

B.long

50
Q

Ag exports generally have what effect on price?

A

Increase

51
Q

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

A

True

52
Q

The marketing time frame for most grains is.

A

18 months

53
Q

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

A

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

54
Q

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

A

False

55
Q

The annual payment will vary year to year.

A

False

56
Q

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

A

True

57
Q

What is principal

A

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

58
Q

What is loan amortization?

A

C.Paying off debt with a fixed repayment schedule

59
Q

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

A

D.Can be negotiated with the lender

60
Q

Interest is

A

.the cost of borrowing money

61
Q

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

A

False

62
Q

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

A

False

63
Q

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

A

D.Both A and C

64
Q

Which of the following is an example of legal risk?

A

A.A change in regulations surrounding milk production

65
Q

Which of the following best describes risk avoidance?

A

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

66
Q

___________ is an example of risk transfer

A

A.An insurance policy

67
Q

A liquidity ratio is a measure of __________ risk.

A

financial

68
Q

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

A

3.0

69
Q

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

A

Legal

70
Q

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

A

C.Workers’ Compensation Insurance

71
Q

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

A

Buy a put option

72
Q

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

A

B.a margin call.

73
Q

Revenue protection coverage insurance protects against

A

A.adecline in price or yield

74
Q

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?

A

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

75
Q

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

A

C.A change in the basis.

76
Q

A farmer would use the futures market with the objective to

A

A.transfer risk

77
Q

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

A

B.simultaneously when selling the crop

78
Q

To hedge using commodity futures, a farmer

A

C.A and B

79
Q

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

A

low yields and low prices.

80
Q

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

A

the farm’s actual production history of yields.

81
Q

The price portion ofrevenue protection insurance is based on

A

the futures market.

82
Q

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

A

D.Depreciate

83
Q

Which of the following risks should realistically be transferred?

A

A low frequency and high severity risk

84
Q

The most common form of farm business is a

A

sole proprietorship.

85
Q

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

A

B.partnership

86
Q

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

A

D.permanent

87
Q

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

A

D.Individuals

88
Q

All are common factors of a C Corporation except

A

unlimited personal liability

89
Q

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

A

stocks

90
Q

The document creating a corporation is called

A

Articles of Incorporation

91
Q

The document creating a Limited Liability Company is called

A

Articles of Organization.

92
Q

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

A

shares

93
Q

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

A

C Corporations

94
Q

The individual who creates a trust is called the

A

trustor

95
Q

The individual who manages a trust is called the

A

trustee

96
Q

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

A

cooperative.

97
Q

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

A

trust

98
Q

Which of the following is nota disadvantage of a corporation?

A

Requires monthly meetings

99
Q

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

A

Limited Liability Company

100
Q

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

A

pass-through taxation

101
Q

Factors to consider when selecting a type of business organization include

A

All the above

102
Q

A Limited Liability Company is created by filing with the

A

Secretary of Statein the state of domicile.

103
Q

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

A

an operating agreement

104
Q

Working Capital is

A

the dollar amount that equals current assets minus current debt.

105
Q

The marginal cost is equal to the

A

change in the total cost divided by the marginal physical product

106
Q

The decision rule for profit maximization is

A

MR=MC

Farm Business Management (5 decks)

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