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Farm Business Management > 2018 FBM Test > Flashcards

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

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2
Q

Which financial statement summarizes financial data for a specific date in time

A

Balance sheet

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3
Q

This financial statement shows the relationship between revenues and expenses

A

Income statement

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4
Q

This financial statement explains changes in net worth

A

Statement of owner equity

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5
Q

This income statement includes

A

Cash receipts, cash expenses, accrual adjustments

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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

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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

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8
Q

The cedar creek farm’s chart of accounts normally includes

A

All of the above

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9
Q

When using cash accounting records,

A

Income and expense are recorded at the time of actual cash transactions

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10
Q

A major advantage of accrual accounting when compared to cash accounting is it

A

Provides a more accurate calculation of profit

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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

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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

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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

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14
Q

Contributed or paid in capital plus retained earnings plus valuation equity is equal to

A

Total owner equity

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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)

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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

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17
Q

Net farm income contribution is

A

Positive

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18
Q

Personal income contribution is

A

positive

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19
Q

Family living expenses contribution is

A

negative

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20
Q

Income taxes paid contribution is

A

negative

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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

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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

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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

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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

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25
Q

Which of the following would be considered a fixed cost

A

Deprecation on machinery

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26
Q

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

A

Competitive

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27
Q

The cost of using a resource based on what it could have earned in the next best alternative is

A

An opportunity cost

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28
Q

Budgeting is used to

A

All of the above

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29
Q

Partial budgets are used to evaluate

A

Expanding an enterprise

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30
Q

The list of expenses in the enterprise budget is a complete list of all expenses required for these enterprises

A

FALSE

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31
Q

Net farm income for 2018 is projected to be equal or even greater than the actual net farm income of 2017

A

False

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32
Q

Cedar creek farms liquidity is anticipated to improve in 2018

A

True

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33
Q

Cedar creek farms solvency is anticipated to improve in 2018

A

True

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34
Q

It is projected that cedar creek farms will have personal income that will exceed family living expenses in 2018

A

True

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35
Q

Which cash income item is expected to be the largest contributor to the farms cash flow in 2018

A

CORN

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36
Q

the debt to asset ratio is a measure of

A

solvency

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37
Q

The ability of the farm’s current assets to repay the farm’s current liabilities is a measure of

A

Liquidity

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38
Q

___ measures the relationship of the total assets, the total debt, and the relationship of total debt to total equity (net worth)

A

Solvency

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39
Q

____ measurements show the distribution of the total revenue among operating expenses, depreciation, interest, and net farm income

A

Efficiency

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40
Q

____ measures whether there is sufficient adjusted revenue to cover family living expenses, income and fica taxes, and total principle and interest on term debt

A

Repayment capacity

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41
Q

Net farm income is a measurement of

A

profitability

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42
Q

Working capital is a measure of

A

liquidity

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43
Q

Term debt coverage ratio is a measure of

A

repayment capacity

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44
Q

Rate of Return on Assets is a measure of

A

profitability

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45
Q

A __ is the right to sell an underlying future contract at a specific price

A

Put option

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46
Q

A ___ is a person who attempts to anticpate price changes and makes profits through market activities

A

Speculator

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47
Q

____ is the difference in the future’s price and the locla price

A

Basis

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48
Q

The right to buy an underlying futures contract at a specific price is a

A

call option

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49
Q

Funds deposited with a broker to trade futures contracts are called a/an ___ account

A

margin

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50
Q

A farmer who sells future contracts to protect production from price fluctuations is called a

A

hedger

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51
Q

An increase in the value of the dollar relative to the currency of other countries should

A

decrease exports to other countries

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52
Q

A producer who decidees to use the futures market to hedge the price of corn to be sold at harvest would

A

Sell futures contracts expecting to buy them back when corn is sold

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53
Q

When using options, the futures price you want to fix or lock in is called the

A

strike price

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54
Q

The price quote offered to the producer is a derived price that reflects the

A

final use value

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55
Q

___ prompts much of the short run price variability of ag commodities

A

Supply variation

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56
Q

The purchase of a put option by a producer sets a price

A

floor

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57
Q

Producers using hedging should always close out the cash position and futures position

A

Simultaneously

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58
Q

What is specified in a forward corn contract?

A

The number of bushels, moisture context, and test weight.

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59
Q

Selling through a farmers’ market or roadside market is called _____ marketing

A

direct

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60
Q

An increase in the quantity of corn exported by the USA will most likely…

A

increase the price of corn in the USA.

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61
Q

This law indicates the rational consumer will purchase more at a lower price.

A

Demand

62
Q

How many futures contracts would be needed to sell 100,000 bushels of corn

A

20

63
Q

A price _______ is attached to those products that are not being accepted by customers.

A

discount

64
Q

What alternative provides the largest net price?

A

Store and hedge with March futures.

65
Q

A cash contract fixes…

A

the futures price and the basis.

66
Q

Most grains have a marketing time frame of…

A

18 months

67
Q

Producers who use the futures markets are able to…

A

shift price risks

68
Q

True or false? Most farmers keep records using the cash method of accounting because they find it easier to use than the accrual method.

A

True

69
Q

True or false? Under the accrual method is counted as income when it is earned regardless of when you receive it.

A

True

70
Q

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.

A

False

71
Q

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.

A

True

72
Q

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

A

False

73
Q

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.

A

False

74
Q

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.

A

True

75
Q

True or false? A farmer must withhold FICA taxes on a person hired as an independent contractor to wire his machine shed.

A

False

76
Q

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.

A

False

77
Q

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.

A

True

78
Q

What does the total interest paid on this grain bin loan represent?

A

None of the Above

79
Q

The promissory note, which is a lender provided with the grain bin loan, will show?

A

All of the Above

80
Q

If the grain bin loan is sold in the secondary market, this will increase the loanable funds available for use by the lender.

A

True

81
Q

The principal amount in each loan payment on the grain bin will always be the same.

A

False

82
Q

What is repossession?

A

The recovery of collateral for non-payment.

83
Q

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

A

Match the useful life of the asset but typically not more than seven years

84
Q

An annual loan payment generally consists of

A

Both A and B

85
Q

Unexpected circumstances where the probability of an event occurring can be measured is called

A

Risk

86
Q

_____ is the act of managing or controlling exposures to risk in order to meet preset objectives or risk exposure guidelines.

A

Risk Management

87
Q

When the probability of an event occurring cannot be measured, this situation is called

A

Uncertainty

88
Q

A/an ____ is an economic device where an individual or business substitutes a certain cost for an uncertain financial loss.

A

Insurance policy

89
Q

The payment to an insurance company by a policyholder to purchase and maintain an insurance policy is an insurance

A

Premium

90
Q

Hedging with commodity futures is an example of risk

A

Transfer

91
Q

Planting a combination of corn, soybeans, and winter wheat is an example of which risk management strategy?

A

Diversification

92
Q

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?

A

Low crop prices and yields

93
Q

Insurance is an example of

A

Risk transfer

94
Q

Forward contracting is usually considered a form of risk management. Under what circumstance would a forward contract be a liability to the business?

A

The yield is less than the amount contracted, and the price has increased

95
Q

A young family that just purchased a home with borrowed money should consider which risk management tool?

A

Life insurance

96
Q

Liability insurance is used to protect against

A

Legal action

97
Q

When a soybean farmer sells a futures contract, the farmer passed risk to the

A

Purchaser (speculator)

98
Q

A disability, employee work accidents, and an employee not reporting for work are examples of which type of risk?

A

Human risk

99
Q

Risk assessment requires managers to consider the

A

Consequences and the probability of a bad outcome

100
Q

A manager who is willing to take a bigger risk would expect to receive

A

A larger average net return

101
Q

Risk management is the process by which a business

A

D. All of the above

102
Q

Which of the following is not a market risk?

A

D. Changes in the cost of production per unit due to a reduced yield

103
Q

Lower than average yields are an example of _______ risk.

A

production

104
Q

A large amount of debt relative to the value of total assets is an example of _________ risk.

A

D. financial

105
Q

What is an example of human risk?

A

Hired help injured by farm machinery

106
Q
  1. _______________ is/are an example of risk control.
A

C. Fire alarms and fire sprinklers

107
Q
  1. The current ratio is a measure of ________ risk.
A

A. financial

108
Q

Forming an LLC can reduce the business owner’s ___________ risk.

A

D. legal

109
Q

An insurance policy deductible is a form of risk

A

D. retention.

110
Q

Which of the following risks should be realistically covered by insurance?

A

. A low frequency and high severity risk

111
Q

What is an example of an incurred loss to a corn field prevented from planting?

A

. Cost of tillage and inputs applied prior to planting

112
Q

Which of the following is a type of cooperative?

A

. All of these are types of cooperatives

113
Q

hich of the following statements about trusts is true?

A

All of the above are true

114
Q

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. A trust

115
Q

Which of the following is not a benefit of a corporate business structure?

A

A. Corporate income is not subject to income taxes.

116
Q

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

A

C. state statutes.

117
Q

The most commonly used type of business organization for US farms and ranches is the

A

C. sole-proprietorship.

118
Q

Of the types of business organizations listed below, which would provide the least protection from tort liability to the owners?

A

. General Partnership

119
Q

n owner of a corporation is also called a(n)

A

. stockholder.

120
Q

Which of the following statements is not a best practice when selecting a business organization structure?

A

. The business structure that minimizes taxation the most is always the best choice.

121
Q
  1. An owner of an LLC is also called a
A

C. member.

122
Q

Owners of an S-Corporation must be US citizens.

A

true

123
Q

In limited partnerships, management duties and liabilities are shared equally by all partners.

A

false

124
Q

Cooperatives are owned and controlled by their member-patrons, and the profits earned by the cooperative are returned to the members based on patronage.

A

true

125
Q

Cooperatives allow farmers and ranchers to gain market power by combining their resources.

A

true

126
Q

Sole-Proprietorships persist after the death of the owner

A

false

127
Q

How many sections are usually in a township?

A

36

128
Q

How many acres are in a section?

A

640

129
Q

When reading a legal land description you read it by

A

. All of the above

130
Q

The range refers to columns of townships running north and south (quadrangle).

A

true

131
Q

Some properties in the U.S. do not have some form of legal land description.

A

false

132
Q

There are approximately _______ acres in a township.

A

23,040

133
Q

An acre equals ____ square feet.

A

43,560

134
Q

A tier refers to the townships running east and west in six-mile increments.

A

True

135
Q

A typical township is six miles square.

A

true

136
Q

Generally, parcels of land that are irregular in shape are legally described by using

A

. metes and bounds.

137
Q

Residential property in towns and cities is generally described by using the recorded plat system.

A

true

138
Q

Which expense listed below would be the most difficult to reduce?

A

Medical Care

139
Q

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

A

D. Price Elasticity of Supply

140
Q

For a hog production operation, the cost of feed can best be described as

A

B. variable cost.

141
Q

he decision rule for profit maximization is

A

A. Marginal Revenue = Marginal Cost.

142
Q

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.

A

Scarcity

143
Q

The branch of economics that studies a business’ resource allocation decisions is

A

. Microeconomics

144
Q

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.

A

. Comparative Advantage

145
Q

The Federal Reserve raising interest rates is an example of ______ policy that affects agricultural businesses.

A

monetary

146
Q

If the supply of corn were to increase while demand remained constant, what would happen to the price?

A

The price would decrease

147
Q

congress lowering taxes is an example of a change in ______ policy that affects agricultural businesses

A

fiscal

148
Q

Of the following descriptions, which best describes a perfectly competitive market?

A

. A market in which all firms are price takers

149
Q
  1. This stage of production is characterized by negative marginal product.
A

C. Stage Three

150
Q

This stage of production is characterized by increasing marginal product.

A

Stage one

151
Q

This stage of production is characterized by decreasing marginal product.

A

Stage two

Farm Business Management (5 decks)

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