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Farm Business Management > 2019 FBM Test > Flashcards

2019 FBM Test Flashcards

1
Q

How is the net farm income reported on the 2018 Income Statement claculated?

A

Gross Cash Income- Total Cash Expense +/i Total Inventory change +/- Depreciation

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2
Q

The statement summarizing the value of business assets and liabilities is often referred to as a balance sheet because

A

Assets= liabilities + owner equity or Net worth

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3
Q

The purpose of the balance sheet is to show at a point in time

A

The value of assets, liabilities, and owner equity

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4
Q

If the statement of cash flow indicates an increase in the cash balance, this means

A

Total cash received was larger than total cash used

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5
Q

Net farm income will influence all of the following except

A

total cash expenses

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6
Q

Which of the following is a source of farm revenue?

A

Customer payment of accounts receivable, sale of grain produced during the accounting period

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7
Q

Which of the following is likely found in a revenue ledger tracking sources of cash revenue

A

Date of sale, Buyer, Quantity Sold, Unit price and total revenue received

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8
Q

In an accural adjusted income statement, accrual adjustments are made for which of the following?

A

Changes to the value of 2017 and 2018 pecan inventory, Changes to the value of 2017 and 2018 prepaid supplies on land

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9
Q

THe chart of accounts normally includes

A

All of the above

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10
Q

When using cash accounting records, a business recognize

A

Income and expense transactions at the time of actual cash transactions

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11
Q

Which of the following financial statements lists the cash and non-cash receipts and expenses of a business during a specified period of time

A

Income Statement

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12
Q

Which fo the following financial statments explains the change in net worth for an accounting period?

A

Statement of Owner Equity

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13
Q

Which of the following financial statement explain the change in cash balance for an accounting period

A

Statement of Cash Flows

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14
Q

Which of the following is not included in the calculation of accrual adjusted gross farm income

A

Change in prepaid supplies

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15
Q

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

A

Provides more flexibility in managing taxable income

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16
Q

The original cost basis of a capital asset, plus improvements, less accumulation depreciation is referred to as the

A

adjusted basis of the asset

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17
Q

A method of prorating the cost of a capital asset over its useful life is

A

Depreciation

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18
Q

The reason for making accrual adjustments to a cash income is to allow

A

a better match of production with the expenses associated with the timing production

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19
Q

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

A

Total assets minus total liabilties

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20
Q

A complete set of financial statments will allow Bryan to calculate each of the following values excpet

A

Per bushel breakeven measures

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21
Q

What is the 1/1/2019 cash balance

A

65014

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22
Q

Since the establishment of the Volkstand Pecan Company, what is the amount of accumulated retained earnings

A

1685917

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23
Q

How much has the change in market value assets contributed to equity of the Volkstad Pecan Company

A

429,560

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24
Q

Budgets are used in planning to evaluate the impact of future actions. To improve the accruacy of a budgt, the operator may use

A

All of the above

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25
Q

When an increase in the level of production of one enterprise causea a reduction in the level of another exnterprise, these two enterprises are said to be

A

Competitive

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26
Q

An enterprise budget is

A

A statement…

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27
Q

If you are considering a change in the farm business that affects only a few itms in the total famr budget, this change could most appropriately be evaluated using.

A

A partial budget

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28
Q

Budgeting is not used to

A

determine the useful life of assets

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29
Q

When determing the effect of growing more acres of a crop, the cost most likely to change would be

A

Fixed costs per acre

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30
Q

A whole farm schedule of expected returns and expenses is a

A

Budget

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31
Q

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

A

Local market value

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32
Q

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

A

determine operating credit needs

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33
Q

Which of the following would be considered a fixed cost?

A

Depreciation or machinery

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34
Q

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

A

an opportunity cost

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35
Q

To analyze the health of the farm business, you should use which of the following?

A

Incomes statment, cash flow projection, net worth statement

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36
Q

In 2019, the annual operatingt loan has to have a limits of at least

A

600,000

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37
Q

WHat month has the highest income

A

Nov.

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38
Q

Depreciation, new loan, farm equity, payment on term debt, land appreciation, sale of capital items, family living

A

No, Yes, No, Yes, No, Yes, Yes

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39
Q

At the end of 2019 total assets

A

are higher.

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40
Q

Based on the 2019 cash flow Executive Summary (R5) (for every dollar of income, what is the amount in cents spent for operating expenses?

A

. 60.7

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41
Q

In the 2019 cash flow, the minimum checkbook balance maintained is

A

D. $25,000.

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42
Q

A tariff assessed on imports is similar to a duty or a tax.

A

. True

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43
Q

Which product category is associated with the Class I milk price?

A

Fluid/beverage milk

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44
Q

Which product category is associated with the Class III milk price?

A

Hard cheeses

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45
Q

Produce is shipped Free On Board (FOB) Shipping Point from South America to the U.S. Upon arrival in the U.S., the buyer pays the full price for the shipment but determines there is a deterioration in produce quality. Who is liable for the damaged produce?

A

Buyer

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46
Q

n the event of a suspected food contamination event, which of the following agencies will respond to the situation? (Place the letters of all that apply in the answer box.)

A

enters for Disease Control and Prevention (CDC) B. State and county health departments C. Federal agencies including Food and Drug Administration (FDA)

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47
Q

roducts labeled “organic” must meet specific USDA requirements regarding which practices?

A

. Production B. Handling C. Labeling

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48
Q

USDA certified organic produce must be grown on soil free of prohibited substances for ___ years.

A

3

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49
Q

hedge-to-arrive (futures) contract has three components, two of which are known at the time the contract is purchased. The known components include _____ and _____. The third component, _____, is unknown until a later date.

A

futures price, delivery month, basis

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50
Q

All other factors held equal, large carryover stocks will tend to have what effect on a commodity’s price?

A

B. Decrease price

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51
Q

Which of the following factors will cause a movement along the demand curve

A

Own price change

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52
Q

A producer who suspects that pecan markets will be bearish in the coming year thinks pecan prices will

A

decrease.

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53
Q

Federal marketing orders are intended to promote agricultural products by collectively influencing

A

All of the above

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54
Q

A producer using the futures market to hedge the price of a commodity sold in the fall would take what action in May?

A

Sell futures contracts expecting to buy them back when the commodity is sold.

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55
Q

When the cash price falls relative to the futures price, , this is known as

A

B. weakening basis.

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56
Q

A producer buys 5,000 units of a product for $3.00 per unit in Market A. She simultaneously sells all 5,000 units for $4.00 per unit in Market B. The producer’s ability to profit from price discrepancies in different markets is called

A

A. arbitrage

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57
Q

An increase in the U.S. exchange rate causes domestic goods to become

A

more expensive for consumers abroad.

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58
Q

Which of the following considerations would factor into storing pecans but not cotton?

A

Perishability

59
Q

If the Volkstads expand into feeder cattle and wish to hedge against future corn price increases, which of these actions would accomplish that goal?

A

Sell a corn futures contract

60
Q

The difference between the cash price and the futures price is called the

A

basis

61
Q

Marketing margin is calculated as the per unit sale price less the per unit

A

production cost.

62
Q

If Volkstad Pecan Company were to add online sales to their operation, this would be an example of ______ integration.

A

vertical

63
Q
  1. Organic pecans are attractive because they command a higher sale price than non-organic pecans. Under the current conditions, which of the following factors would the Volkstads need to consider before planting an organic pecan orchard?
A

abor requirements B. Equipment needs C. Pest control costs

64
Q

The main thing to keep in mind with regard to income tax management is to

A

maximize after tax income.

65
Q

Effective tax planning requires

A

knowing personal financial goals. B. up-to-date records. C. reliable long-range projections.

66
Q

The most common accounting method used by farmers for taxes.

A

Cash

67
Q

assets, other than land and some livestock, used in farming that have a useful life of more than one year are

A

D. depreciable.

68
Q

Place the letters in the box of all the items that would increase a farm’s taxable income.

A

Sell two semi loads of soybeans, se straight-line depreciation versus MACRS depreciation, Delay paying open accounts

69
Q

Which person below is required to pay social security taxes?

A

Parent who works for his child’s corporation

70
Q

The taxes that may be due when a person dies.

A

Estate taxes

71
Q

The standard deduction for a married couple in 2018 is

A

24000

72
Q

The personal exemption in 2018 is

A

0.00

73
Q

Farmers that do not pay income tax quarterly or file an estimate must file and pay by

A

Mar 1

74
Q

When a farmer trades in a piece of equipment, it is

A

A. treated as a sale.

75
Q

When a new or used capital item is purchased and no section 179 is taken, then

A

The entire amount is placed on the depreciation schedule.

76
Q

For an amortized loan, which of the following increases each year

A

C. principal payment

77
Q

What is the total cash outlay on this note?

A

the total amount of money paid to the lender

78
Q

What is lender repossession?

A

Losing the asset for non-payment

79
Q

An amortization table and loan documents are what a lender provides the borrower with each loan to disclose the

A

Amount of money borrowed. B. amount of principal and interest paid with each payment. C. amount and rate paid to the lender for borrowing the money. D. unpaid balance due at the end of each year.

80
Q

The principal and interest amounts in each of the payments on this note will always be the same.

A

False

81
Q

Which of the following is an example of financial risk that applies to Volkstad Pecan Company?

A

change in interest rates

82
Q

hich of the following is an example of legal risk?

A

change in tariff rates and food export regulations

83
Q

Which of the following best describes risk avoidance?

A

Ending an activity to eliminate the possibility of a loss

84
Q

___________ is an example of risk transfer.

A

A. An insurance policy

85
Q

A solvency ratio is a measure of __________ risk.

A

. Financial

86
Q

Assume that the following debt-to-asset ratios are given for 5 farms. Based solely upon these ratios, which farm is at the greatest financial risk?

A

0.9

87
Q

Adopting an appropriate integrated pest management system mitigates __________ risk.

A

E. production

88
Q

Which of the following is an example of market risk that applies to Volkstad Pecan Company?

A

A change in pecan prices, change in consumers’ tastes and preferences for organic products

89
Q

A worker’s compensation insurance policy is an appropriate treatment for a farm’s _____________ risk

A

. human

90
Q

A farmer who wants to establish a price floor for corn to be received at harvest would

A

buy a put option.

91
Q
  1. A farmer would use the futures market with the objective to
A

transfer risk

92
Q

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

A

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

93
Q

After the farmer is hedged in Question #12, what is the only factor that could change the price received?

A

A change in the basis.

94
Q

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

A

simultaneously when selling the crop.

95
Q

To hedge using commodity futures, a farmer must

A

use a broker. B. create a margin account.

96
Q

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

A

B. low yields and low prices.

97
Q

The yield protection in revenue protection insurance is based on

A

the farm’s actual production history of yields.

98
Q

The price protection in revenue protection insurance is based upon

A

the futures market

99
Q

Pecan markets pose an interesting problem for farm price risk management. There is not a futures contract for pecans. In the absence of a futures contract, what is the most appropriate means to manage price risk for pecan operations?

A

forward contract B. A production contract

100
Q

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

A

A. Identify B. Monitor C. Plan D. Prioritize

101
Q

Which of the following risks should be avoided?

A

high frequency and high severity risk

102
Q

If Volkstad Pecan Company decided to join with other pecan growers to start a pecan shelling plant, which type of cooperative should they form?

A

Processing

103
Q

During their farming career, Bryan and Brianna have grown their operation from nothing to a thriving 210-acre pecan orchard. In the long-term, they are interested in protecting their orchard and ensuring that it stays in their family for many generations to come. Which of the following business organizations would best suit their goal?

A

. A trust

104
Q

Which of the following is a benefit of a corporate business structure?

A

orporate income can be taxed at a lower rate than personal income. B. Ownership is easily divided into shares. C. A corporation does not dissolve with the death of an owner.

105
Q

he most commonly used type of business organization for US farms and ranches is the _____.

A

. sole proprietorship

106
Q

Choosing to organize a business as a(n) __________ provides entrepreneurs with the greatest access to capital.

A

A. corporation

107
Q

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

A

D. General Partnership

108
Q

If a farm business owner wishes to organize her business as simply as possible with minimal record keeping requirements, which type of organization should she choose?

A

C. Sole Proprietorship

109
Q

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

A

stockholder

110
Q

n owner of a Limited Liability Company is also called a(n) _____.

A

member

111
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 for business owners.

112
Q

According to the IRS code, owners of an S-Corporation must be US citizens

A

T

113
Q

According to IRS rules, C-Corporations may not have more than 100 stockholders.

A

F

114
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

T

115
Q

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

A

T

116
Q

Trusts are a particularly useful form of business organization for estate planning purposes.

A

T

117
Q

Thomas Jefferson authorized a system of land measurements to define locations of properties in the western territory for which of these main reasons?

A

. So that private ownership of property could be easily defined. B. So that property could be exchanged to another owner more easily.

118
Q
  1. How many sections are in a township?
A

36

119
Q

The purpose of a school section was to plan ahead for land settlements so that

A

. children wouldn’t have to travel far to school. B. the sections would become the property of the state.

120
Q

When interpreting a legal land description, you

A

. read it backwards. B. locate the section in the township. C. find the location in the quarter.

121
Q

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

A

T

122
Q

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

A

F

123
Q

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

A

T

124
Q

The curvature of the earth causes a need to include correctional sections in legal descriptions.

A

A. True

125
Q

Generally, parcels of land that are located in a city subdivision are legally described by using

A

. recorded plats

126
Q

Property in most towns and cities on the East coast generally use the metes and bounds survey system.

A

T

127
Q

“Starting at an iron post, 523’ N 10 ̊” is an excerpt from a legal land description. What system of legal land descriptions does this description conform to?

A

Metes and Bounds

128
Q

The following excerpt is from a legal description: “W ½, E ½, SE ¼, Section 10”. What system of legal land descriptions does this description conform to?

A

Rectangular Survey

129
Q

ompare the beginning and ending values on the first 5 Financial Standards Measures listed. Which measure(s) were worse at the end of the year?

A

E. None of the above

130
Q

The Operating Expense Ratio is a financial factor that represents

A

Operating expense in comparison to Gross Farm Income.

131
Q

n which category does the Volkstad family spend less per person than the area average?

A

Utilities

132
Q

What is the largest family living expenditure item for the Volkstad family?

A

Nonfarm real estate purchases

133
Q

Which expense listed below would be the easiest to reduce?

A

Recreation

134
Q

The area average spends at least seven percent of the total cash family living expense on which category?

A

Medical care

135
Q

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

A

Income taxes

136
Q

the production function decision rule for moving from stage one to stage two.

A

. Marginal Product = Average Product.

137
Q

The production function is the

A

physical relationship between inputs and output.

138
Q
  1. The term output divided by input is known as
A

Avg. product

139
Q

To mathematically determine the least cost combination of two inputs, you will find where

A

the marginal rate of substitution equals the price ratio.

140
Q

Maximum profit will be obtained when variable input is added until

A

value of marginal product equals input price.

141
Q

Diminishing returns begin to develop in

A

stage two of the production function.

142
Q

For the Volkstad Pecan Company, the cost of fertilizer can best be described as a(an)

A

variable cost.

143
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

Farm Business Management (5 decks)

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