2018 FBM Test Flashcards
1
Q
Which financial statement summarizes the sources and uses of cash to explain the change in the cash balance reported on the balance sheet
A
Statement of cash flows
2
Q
Which financial statement summarizes financial data for a specific date in time
A
Balance sheet
3
Q
This financial statement shows the relationship between revenues and expenses
A
Income statement
4
Q
This financial statement explains changes in net worth
A
Statement of owner equity
5
Q
This income statement includes
A
Cash receipts, cash expenses, accrual adjustments
6
Q
Which of the following is/are associated with farm revenue?
A
Cash received from the sale of grain produced during the accounting period. A change in the value of crop inventory
7
Q
Which of the following is/are likely found in a revenue ledger
A
All of the above (duty of sale, buyer, quantity sold, unit price and total revenue received
8
Q
The cedar creek farm’s chart of accounts normally includes
A
All of the above
9
Q
When using cash accounting records,
A
Income and expense are recorded at the time of actual cash transactions
10
Q
A major advantage of accrual accounting when compared to cash accounting is it
A
Provides a more accurate calculation of profit
11
Q
The original cost basis of an asset plus the cost of any improvements extending the life of the asset less accumulated depreciation on the asset is referred to as the
A
Adjusted basis of the asset
12
Q
The decrease in value of a capital asset that occurs regardless of repair and maintenance due to wear and/or obsolescence is called
A
Depreciation
13
Q
In order to make accrual adjustments to cash income and cash expenses, it is necessary to have
A
A balance sheet from the beginning and ending of the accounting period
14
Q
Contributed or paid in capital plus retained earnings plus valuation equity is equal to
A
Total owner equity
15
Q
The amount of net farm income that has accumulated in a business since it began is
A
Both A and C (retained earnings, one source of owner equity)
16
Q
In order for retained earnings of a sole proprietorship to increase,
A
Net farm income must be larger than money withdrawn from the business
17
Q
Net farm income contribution is
A
Positive
18
Q
Personal income contribution is
A
positive
19
Q
Family living expenses contribution is
A
negative
20
Q
Income taxes paid contribution is
A
negative
21
Q
Net farm income for a farm business organized as a sole proprietorship represents a return to all the following except
A
Personal assets
22
Q
The farm has decided that renting land for cash rather than shares of production results in
A
Less risk for the landlord and more risk for the tenant
23
Q
When considering the production information for the soybean enterprise, the farm is trying to get maximum returns above variable cost. You, as a farm management consultant, should recommend that managers add input until
A
Marginal cost is equal to marginal revenue
24
Q
If more acres of corn are planted, which of the following costs is least likely to change
A
Average field variable (direct) costs per acre
25
Which of the following would be considered a fixed cost
Deprecation on machinery
26
When an increase in the level of production of one enterprise causes a reduction in the level of production of another enterprise, these two enterprises are said to be
Competitive
27
The cost of using a resource based on what it could have earned in the next best alternative is
An opportunity cost
28
Budgeting is used to
All of the above
29
Partial budgets are used to evaluate
Expanding an enterprise
30
The list of expenses in the enterprise budget is a complete list of all expenses required for these enterprises
FALSE
31
Net farm income for 2018 is projected to be equal or even greater than the actual net farm income of 2017
False
32
Cedar creek farms liquidity is anticipated to improve in 2018
True
33
Cedar creek farms solvency is anticipated to improve in 2018
True
34
It is projected that cedar creek farms will have personal income that will exceed family living expenses in 2018
True
35
Which cash income item is expected to be the largest contributor to the farms cash flow in 2018
CORN
36
the debt to asset ratio is a measure of
solvency
37
The ability of the farm's current assets to repay the farm's current liabilities is a measure of
Liquidity
38
___ measures the relationship of the total assets, the total debt, and the relationship of total debt to total equity (net worth)
Solvency
39
____ measurements show the distribution of the total revenue among operating expenses, depreciation, interest, and net farm income
Efficiency
40
____ measures whether there is sufficient adjusted revenue to cover family living expenses, income and fica taxes, and total principle and interest on term debt
Repayment capacity
41
Net farm income is a measurement of
profitability
42
Working capital is a measure of
liquidity
43
Term debt coverage ratio is a measure of
repayment capacity
44
Rate of Return on Assets is a measure of
profitability
45
A __ is the right to sell an underlying future contract at a specific price
Put option
46
A ___ is a person who attempts to anticpate price changes and makes profits through market activities
Speculator
47
____ is the difference in the future's price and the locla price
Basis
48
The right to buy an underlying futures contract at a specific price is a
call option
49
Funds deposited with a broker to trade futures contracts are called a/an ___ account
margin
50
A farmer who sells future contracts to protect production from price fluctuations is called a
hedger
51
An increase in the value of the dollar relative to the currency of other countries should
decrease exports to other countries
52
A producer who decidees to use the futures market to hedge the price of corn to be sold at harvest would
Sell futures contracts expecting to buy them back when corn is sold
53
When using options, the futures price you want to fix or lock in is called the
strike price
54
The price quote offered to the producer is a derived price that reflects the
final use value
55
___ prompts much of the short run price variability of ag commodities
Supply variation
56
The purchase of a put option by a producer sets a price
floor
57
Producers using hedging should always close out the cash position and futures position
Simultaneously
58
What is specified in a forward corn contract?
The number of bushels, moisture context, and test weight.
59
Selling through a farmers' market or roadside market is called _____ marketing
direct
60
An increase in the quantity of corn exported by the USA will most likely...
increase the price of corn in the USA.
61
This law indicates the rational consumer will purchase more at a lower price.
Demand
62
How many futures contracts would be needed to sell 100,000 bushels of corn
20
63
A price _______ is attached to those products that are not being accepted by customers.
discount
64
What alternative provides the largest net price?
Store and hedge with March futures.
65
A cash contract fixes...
the futures price and the basis.
66
Most grains have a marketing time frame of...
18 months
67
Producers who use the futures markets are able to...
shift price risks
68
True or false? Most farmers keep records using the cash method of accounting because they find it easier to use than the accrual method.
True
69
True or false? Under the accrual method is counted as income when it is earned regardless of when you receive it.
True
70
True or false? Under the cash method, a bill that is owed can be considered an expense this tax year even though you intend to pay it next year because you intend to pay in cash.
False
71
True or false? Section 179 Expense Deduction allows you to recover a portion (or all) of the purchase cost of certain properties in the year of the purchase, rather than depreciating the item over a specific number of years.
True
72
True or false? In 2017, the Special Depreciation Allowance allowed the farmer to take 50% more depreciation deduction over the class life of the property than if the item was depreciated over time using MACRS (GDS) depreciation
False
73
True or false? A sole-proprietor farmer who hires his 17- year- old daughter to work on the farm must withhold federal income tax, social security, and Medicare tax.
False
74
True or false? Self-Employment Tax is paid by self-employed individuals (who make over $400 of self-employed income) at the rate of 15.3% which covers both social security tax and Medicare tax.
True
75
True or false? A farmer must withhold FICA taxes on a person hired as an independent contractor to wire his machine shed.
False
76
True or false? A person hired by a farmer to run a machine owned by the farmer, when the farmer tells a person when to come and leave, and how to do the task, could be classified as an independent contractor for employment tax purposes if the person agrees to that status.
False
77
True or false? A farmer who has two seasonal employees with a combined annual salary of approximately $8,000 would not be required to pay Federal Unemployment (FUTA) Tax on them.
True
78
What does the total interest paid on this grain bin loan represent?
None of the Above
79
The promissory note, which is a lender provided with the grain bin loan, will show?
All of the Above
80
If the grain bin loan is sold in the secondary market, this will increase the loanable funds available for use by the lender.
True
81
The principal amount in each loan payment on the grain bin will always be the same.
False
82
What is repossession?
The recovery of collateral for non-payment.
83
What is the usual length of time for the term on the machinery loan?
Match the useful life of the asset but typically not more than seven years
84
An annual loan payment generally consists of
Both A and B
85
Unexpected circumstances where the probability of an event occurring can be measured is called
Risk
86
_____ is the act of managing or controlling exposures to risk in order to meet preset objectives or risk exposure guidelines.
Risk Management
87
When the probability of an event occurring cannot be measured, this situation is called
Uncertainty
88
A/an ____ is an economic device where an individual or business substitutes a certain cost for an uncertain financial loss.
Insurance policy
89
The payment to an insurance company by a policyholder to purchase and maintain an insurance policy is an insurance
Premium
90
Hedging with commodity futures is an example of risk
Transfer
91
Planting a combination of corn, soybeans, and winter wheat is an example of which risk management strategy?
Diversification
92
Many corn farmers purchase crop revenue insurance to protect against adverse outcomes. This type of crop insurance helps to protect against which of the following?
Low crop prices and yields
93
Insurance is an example of
Risk transfer
94
Forward contracting is usually considered a form of risk management. Under what circumstance would a forward contract be a liability to the business?
The yield is less than the amount contracted, and the price has increased
95
A young family that just purchased a home with borrowed money should consider which risk management tool?
Life insurance
96
Liability insurance is used to protect against
Legal action
97
When a soybean farmer sells a futures contract, the farmer passed risk to the
Purchaser (speculator)
98
A disability, employee work accidents, and an employee not reporting for work are examples of which type of risk?
Human risk
99
Risk assessment requires managers to consider the
Consequences and the probability of a bad outcome
100
A manager who is willing to take a bigger risk would expect to receive
A larger average net return
101
Risk management is the process by which a business
D. All of the above
102
Which of the following is not a market risk?
D. Changes in the cost of production per unit due to a reduced yield
103
Lower than average yields are an example of _______ risk.
production
104
A large amount of debt relative to the value of total assets is an example of _________ risk.
D. financial
105
What is an example of human risk?
Hired help injured by farm machinery
106
24. _______________ is/are an example of risk control.
C. Fire alarms and fire sprinklers
107
25. The current ratio is a measure of ________ risk.
A. financial
108
Forming an LLC can reduce the business owner’s ___________ risk.
D. legal
109
An insurance policy deductible is a form of risk
D. retention.
110
Which of the following risks should be realistically covered by insurance?
. A low frequency and high severity risk
111
What is an example of an incurred loss to a corn field prevented from planting?
. Cost of tillage and inputs applied prior to planting
112
Which of the following is a type of cooperative?
. All of these are types of cooperatives
113
hich of the following statements about trusts is true?
All of the above are true
114
The parents are planning for retirement. During their farming career, they have grown their farm to 2,000 acres of prime farmland. They are particularly concerned about leaving their family a legacy of farming by protecting and ensuring that their farmland stays in their family for many generations to come
A. A trust
115
Which of the following is not a benefit of a corporate business structure?
A. Corporate income is not subject to income taxes.
116
If a person does not have a will at the time of their death, the disbursement of his or her assets will be guided by
C. state statutes.
117
The most commonly used type of business organization for US farms and ranches is the
C. sole-proprietorship.
118
Of the types of business organizations listed below, which would provide the least protection from tort liability to the owners?
. General Partnership
119
n owner of a corporation is also called a(n)
. stockholder.
120
Which of the following statements is not a best practice when selecting a business organization structure?
. The business structure that minimizes taxation the most is always the best choice.
121
10. An owner of an LLC is also called a
C. member.
122
Owners of an S-Corporation must be US citizens.
true
123
In limited partnerships, management duties and liabilities are shared equally by all partners.
false
124
Cooperatives are owned and controlled by their member-patrons, and the profits earned by the cooperative are returned to the members based on patronage.
true
125
Cooperatives allow farmers and ranchers to gain market power by combining their resources.
true
126
Sole-Proprietorships persist after the death of the owner
false
127
How many sections are usually in a township?
36
128
How many acres are in a section?
640
129
When reading a legal land description you read it by
. All of the above
130
The range refers to columns of townships running north and south (quadrangle).
true
131
Some properties in the U.S. do not have some form of legal land description.
false
132
There are approximately _______ acres in a township.
23,040
133
An acre equals ____ square feet.
43,560
134
A tier refers to the townships running east and west in six-mile increments.
True
135
A typical township is six miles square.
true
136
Generally, parcels of land that are irregular in shape are legally described by using
. metes and bounds.
137
Residential property in towns and cities is generally described by using the recorded plat system.
true
138
Which expense listed below would be the most difficult to reduce?
Medical Care
139
The concept in economics that explains the magnitude of changes in the production of a product relative to changes in the price of the product is called
D. Price Elasticity of Supply
140
For a hog production operation, the cost of feed can best be described as
B. variable cost.
141
he decision rule for profit maximization is
A. Marginal Revenue = Marginal Cost.
142
he principle of _____________ implies that due to the finite availability of resources, economic decision-makers must make decisions to deploy their resources in an efficient manner.
Scarcity
143
The branch of economics that studies a business’ resource allocation decisions is
. Microeconomics
144
The principle of _____________ states that producers should produce the products that they are best able to produce and purchase products that they produce less efficiently.
. Comparative Advantage
145
The Federal Reserve raising interest rates is an example of ______ policy that affects agricultural businesses.
monetary
146
If the supply of corn were to increase while demand remained constant, what would happen to the price?
The price would decrease
147
congress lowering taxes is an example of a change in ______ policy that affects agricultural businesses
fiscal
148
Of the following descriptions, which best describes a perfectly competitive market?
. A market in which all firms are price takers
149
11. This stage of production is characterized by negative marginal product.
C. Stage Three
150
This stage of production is characterized by increasing marginal product.
Stage one
151
This stage of production is characterized by decreasing marginal product.
Stage two
