2017 FBM Test Flashcards by Bryson Boone

Which financial statement lists the value of farm assets and liabilties on a specific date?

Balance sheet

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This financial statment reports farm revenues minus farm operating and financial expenses over an accounting period

Income

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This financial statment expresses the relationship between the sources of cash and uses of cash over an accounting period

Statement of cash flows

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This financial statement explains changes in net worth

Statement of owner equity

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Which of the following is considered a farm revenue in an accrual-asjusted income statement

Crop sales during the accounting period, The increase in the value of crop inventory during the accounting periof

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The original cost basis of an asset plus the cost of any improvements or alterationd that extends the life of the asset less accumulated depreciation or depletion on the asset is referred to as the

Adjusted basis or cost value of the asset

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Net farm income from perations for a sole proprietorship business refers to

Accrual adjusted revenues minus accrual adjusted expenses

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Cash on hand on a business balance sheet would most closely correspond to which of the following?

The balance in the farm checking and savings account

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The owner equity of a farm business is comprised of which three parts?

Contributed or paid in capital, retained earnings and valuation equity

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Net Farm income for a farm business organized as a sole propritorship represents a return to all of the following except

Borrowed capital

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Which one of the following statements is true

The Accrual Income statement can have a gross revenue…

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Which of the following can increase the retained earnings of the farm business?

Net farm income greater than business withdrawls for family living expenses and income taxes

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On the beginning balance sheet of Valley View Farm, R1 and R2 crop inventory is valued at 238958. On the ending balance sheet of Valley View Farm. R3 and R$ crop inventiry is valued at 322191. Tjis indicates that crops sold

Understate the accrual asjusted crop revenues

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If the calculated ending owner equity equals the owner equity reported on the ending balance sheet

This would give you confidence your balance sheet…

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On the beginning balance sheet, current assets represent what percent of total market farm assets? Round to the nearest tenth of a percent.

11.2%

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On the ending balance sheet, what asset contributes the largest value to the total market value assets of Valley View Farm?

Land

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On rhw beginning balance sheet what is the valuation equity for the Valley View Farm?

$3725483

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When Olaf purchased a farm in 2016, he decided to refinance the existing farm mortgage. The accrued interest from the existing mortgage was made on March 31, 2016. Interest on the mortgage accrues at the rate of $88.28 per day. What was the amount of accrued interest added to the new mortgage on November 1, 2016?

$18891.92

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Part of the farm purchased in 2016 was financed with a $175,000 contract with the seller. The interest rate is 4.5%. Constant annual principal and interest payments will be made each November 1 for 10 years. Using the table of amortization factors in the resource material, R22, what is the annual principal and interest payment that must be made on this contract?

$22116.50

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The accural adjustment for Prepaids and Supplies in the Income Statement, R5 & R6, indicates cash expenses overstate expenses for the accounting period by how much?

97152

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The statement of cash flow indicates $_________ was borrowed during 2016.

2671984

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A financial management tool showing the projected costs and returns associated with a single production process is

enterprise budget

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A management tool where a person compares two different production options or practices, and then cimpares estimated income and expenses to identify the better option or practice is

partial budget

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When determining the effect of growing more acres of a crop in an enterprise budget the value likely to change would be

fixed cost per acre

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A whole farm schedule of expected returns and expenses is a

budget

In a partial budget, to determine the effect of choosing one option over another you would

subtract additional costs plus reduced returns from additional revenue plus reduced costs

For a livestock budget to be meaningful, what value should be placed on raised crops fed

Local market value

A cash flow projection is a form of budgeting that is used to

determine operating credit needs

Which of the following contributes the largest amount of expernse to the total farm overhead expenses

hired labor

Based on the enterprise analysis, which enterprise would contribute the most to the total net farm income

soybeans cash rented

What is the break even price per bushel to cover total direct and overhead expenses for owned corn

4.10

a 10% decrease in 2017 revenue would cause the Term Debt Coverage Ratio to be less than adequate

True

The 2017 cash flow projection indicates a cash surplus after paying operating expenses and servicicing term debut

false

In 2017 the projected ending operating loan balance is larger than the beginning operating loan balance

true

Holding all else constant if less cash were retained in the checking account the ending balance of the operating loan would be smaller

true

If the large seed bill that is anticipated to be paid in November of 2017 was postponed until Janaury of 2018 the operating loan balance at the end of the 2017 would be smaller and the net farm income for 2017 would be larger

false

Solvency measures the ability of all assets, if sold at market value to cover all debts

true

A good measure of Solvency is the current ratio

false

refinancing a portion of an opertating loan as a longer term debt would improve the liquidity of the business

true

Selling a piece of equipment that is no longer used would generate cash that could help meet the cash flow needs of the business

True

Increasing cash flow does not necessarily increase net profit

True

Comparing the Planned Income for 2017 with the Actual Income for 2016, in the 2016 analysis, a major reason for the improvement in Net Cash Farm income is because the producer was able to lower cash farm expenses

False

Although family living for a sole proprietor is not a farm expense, it is important to include it on a Cash flow projection because it has a defined effect on the finances of the operation

True

Which of the following are business marketing utilities? a)form b)order c)place d)shape e)time f)posession

a, c, e, f

The law of demand says that a consumer will buy more at

lower prices

The most common element of federal government programs has to been to

Provide price support

Price movement occurs over time because a) demand shifts b) supply shifts c) prices rise d) prices fall

a and b

Producers can protect prices by the use of a)cash contracts b) basis contracts c) futures contracts d) option contracts

a, c, and d

To protect the price of the cattle on feed, he should

purchase a put option

If the cattle were hedged, what woulod he do on the futures market when he sells the cattle?

Buy a future contract

Under the cash method of accounting, an expense becomes a deductible expense if the bill is oweed but has not yet been paid

False

Under the cash method of accounting, income that arrives in the mail at the end of the year does not have to be claimed as income for the year if it is not deposited into the bank account until the next business year

False

Under the cash method of accounting, income is considered to be constructively received if it is available to you without restriction

True

In order to figure gain or loss on the sale of a capital asset, you must often make adjustments to the original basis of the asset

True

In the case of Commodity Credit Corporation loans or grain, the farmer can choose to have them treated either as a sale of grain, or as a loan for tax purpose

True

If you buy or make improvements to farm property that hace a useful life of more than one year, you generally must spread the cost over several years. This is called

depreciation

Assuming that the farmer's purchases of all qualifying property is below the allowable Section 179 limit, which property9ies) would be eligible for a Section 179 deduction

A new grain bin costing 48000

It would allow you to receive a 75000 depreciation deduction over time on 50000 new tractor

False

It could be used on the construction cost of a new machine shed that could double as a hay storage facility

True

Which of the following sources of farm income would be subject to self employment tax for a self employed farmer?

Sale of raised crops

The entity itself is not taxed. The owner's share of income is taxable to the owner, subject to the federal and state (if appropriate) income taxes, but not to self-employment tax

S-corporation

the entity is taxed. The after-tax profits can be distributed to the owner as dividend and are subject to tax for a second time

C-Coproration

The simplest form of business structure. All farm income earned is subject to self-employment tax

Sole-proprietor

Owners are called members

LLC

The entity is not taxed. The owner's share of income is taxable to the owner and is subjected to self employment tax as well as federal income taxes

Partnership

Social security and medicare taxes must be withheld from the cash wages paid to all three employees

False

The value of Steve's commodity wage corn is subject to Federal taxes, but not to FICA taxes

True

The principal amount in each of the three payments will always be the same

False

What is principal?

The actual amount of money borrowed from the dealer

What is ammoritzation?

Paying off debt with a fixed repayment schedule

What is the usual length of time for the term on a loan?

It will match the useful life of the asset

The annual payment generally consists of two things. What are they?

Interest and Principal

Interest is

the amount of money you pay to the lender for borrowing the money

For all amortized loans the interest amount on each loan payment will always remain the same during the life of the loan

False

Regardless of the loan type, all loans, except personal loans, are governed by state and federal guidlelines to protect consumers

True

Which of the following is an example of market risk?

Both A and C

What is an example of human risk

Hired help injured by farm machinery

_____ is an example of risk transfer

Both A and B

The current ratio is a measure of ___ risk

financial

Forming an LLC can reduce the business owner's __ risk

legal

To establish a price ceiling for corn feed expense, a livestock producer should

buy a Call option

Revenue protection crop insurance protects against

a decline in price or yield

It is June and the soybean futures market is trading....

Sell futures contracts expecting to buy those contracts when selling

Once a farmer is hedged in the futures market, what is the only factor that could change the price received?

A change in the basis

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

Budget

Which of the following risks should realistically be transferred?

A low frequency and high severity risk

A family just purchased a home with borrowed money They should consider which risk management rool

Life insurance

Liability insurance protects against

Legal risk

When a farmer hedges with commodity futures, the risk is passed to

the purchaser of the contract (speculator)

___ is an economic device where an individual substitutes a certain cost premimum for an uncertain financial work

Insurance

-____ is the selling of a commodity futures contract to protect a farmer from lower prices at the time the product is sold

Hedging

___ is the practice of producing several enterprises to protect against

Diversification

A nieghbor sues because trees were killed by herbicide drift. This is an example of

Legal risk

Increased fertilizer cost for producing corn is an example of

Market Risk

What is an example of a direct loss to a corn farm prevented from planting?

Cost of tilage and inputs applied prior to planting

An example of risk control

are fire extinguishers and eye goggles

The deductible for an insurance policy is a form of

Risk retention

a.be as simple as possible.b.provide access to sufficient resource’s.c.have a credit card.d.encourage planning ahead.e.distribute benefits fairly on the basis of contribution.f.decrease the efficiency of all capital resources

a, b, d and e

The appropriate business organization should involve combinationsof factors related to the goals of the owners.a. who owns the businessb. what is the ability to acquire resourcesc.what county is the business locatedd. what is the liability of the ownerse. what is the family living costf. who participates in management decisionsg. how easy is it to transfer business ownership h. how long is the expected life of the business

a, b, d, f, g and h

The most common form of farm/ranch business organization isa

sole proprietorship

The business organization that limits individual liability.

corporation

Which is not considered an advantage of sole proprietorship in most cases?

tax savings

Which of the following is nota form of partnership?

Corporate

The favorable characteristics of being incorporated are

D. All of these

Trustsare a form of property ownership andtheymay be formed for many reasons. Which of the following is nottrue?w

Avoidance of real estate taxes

Term Debt Coverage Ratio is a ratio

showing the ability to pay all term debt payments

In the list below, indicate which expenses would be the most difficult to reduce?

Health Insurance

Economics is the science of

allocation

A production function is used to determine all of the following exceptA.

the maximum price a consumer will pay for an output

If a freeze were to occur that killed much of an apple crop, which of the following statements would be true if the market equilibrated?

B.The quantitydemanded would decrease.C.The supply would decrease

The economic principle that states “when more units of a single input are used in aproduction process, output increases at a decreasing rate when all other factorsare held equal”is called

B.the Law of Diminishing Returns

The concept in economics that explains the magnitude of changes in the consumption of a product relative to changes in the price of the product is called

Price Elasticity of Demand

Which termdescribes all of the costs associated with producing an output on a per unit basis

E.Average Total Cost

The gains forgone by choosing to use a resource for one use instead of another is called the

Opportunity Cost

The decision rule for profit maximizationis

Marginal Revenue = Marginal Cost