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
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
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
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
5
Q
Net farm income will influence all of the following except
A
total cash expenses
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
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
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
9
Q
THe chart of accounts normally includes
A
All of the above
10
Q
When using cash accounting records, a business recognize
A
Income and expense transactions at the time of actual cash transactions
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
12
Q
Which fo the following financial statments explains the change in net worth for an accounting period?
A
Statement of Owner Equity
13
Q
Which of the following financial statement explain the change in cash balance for an accounting period
A
Statement of Cash Flows
14
Q
Which of the following is not included in the calculation of accrual adjusted gross farm income
A
Change in prepaid supplies
15
Q
A major advantage of cash accounting when compared to accrual accounting is it
A
Provides more flexibility in managing taxable income
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
17
Q
A method of prorating the cost of a capital asset over its useful life is
A
Depreciation
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
19
Q
Contributed (or paid in) capital, plus retained earnings, plus valuation equity is equal to
A
Total assets minus total liabilties
20
Q
A complete set of financial statments will allow Bryan to calculate each of the following values excpet
A
Per bushel breakeven measures
21
Q
What is the 1/1/2019 cash balance
A
65014
22
Q
Since the establishment of the Volkstand Pecan Company, what is the amount of accumulated retained earnings
A
1685917
23
Q
How much has the change in market value assets contributed to equity of the Volkstad Pecan Company
A
429,560
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
25
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
Competitive
26
An enterprise budget is
A statement...
27
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 partial budget
28
Budgeting is not used to
determine the useful life of assets
29
When determing the effect of growing more acres of a crop, the cost most likely to change would be
Fixed costs per acre
30
A whole farm schedule of expected returns and expenses is a
Budget
31
For a livestock budget to be meaningful, what value should be placed on raised crops fed?
Local market value
32
A cash flow projection is a form of budgeting that is used to
determine operating credit needs
33
Which of the following would be considered a fixed cost?
Depreciation or machinery
34
The cost of using a resoucces based on what it could have earned in the next base alternative is
an opportunity cost
35
To analyze the health of the farm business, you should use which of the following?
Incomes statment, cash flow projection, net worth statement
36
In 2019, the annual operatingt loan has to have a limits of at least
600,000
37
WHat month has the highest income
Nov.
38
Depreciation, new loan, farm equity, payment on term debt, land appreciation, sale of capital items, family living
No, Yes, No, Yes, No, Yes, Yes
39
At the end of 2019 total assets
are higher.
40
Based on the 2019 cash flow Executive Summary (R5) (for every dollar of income, what is the amount in cents spent for operating expenses?
. 60.7
41
In the 2019 cash flow, the minimum checkbook balance maintained is
D. $25,000.
42
A tariff assessed on imports is similar to a duty or a tax.
. True
43
Which product category is associated with the Class I milk price?
Fluid/beverage milk
44
Which product category is associated with the Class III milk price?
Hard cheeses
45
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?
Buyer
46
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.)
enters for Disease Control and Prevention (CDC) B. State and county health departments C. Federal agencies including Food and Drug Administration (FDA)
47
roducts labeled “organic” must meet specific USDA requirements regarding which practices?
. Production B. Handling C. Labeling
48
USDA certified organic produce must be grown on soil free of prohibited substances for ___ years.
3
49
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.
futures price, delivery month, basis
50
All other factors held equal, large carryover stocks will tend to have what effect on a commodity’s price?
B. Decrease price
51
Which of the following factors will cause a movement along the demand curve
Own price change
52
A producer who suspects that pecan markets will be bearish in the coming year thinks pecan prices will
decrease.
53
Federal marketing orders are intended to promote agricultural products by collectively influencing
All of the above
54
A producer using the futures market to hedge the price of a commodity sold in the fall would take what action in May?
Sell futures contracts expecting to buy them back when the commodity is sold.
55
When the cash price falls relative to the futures price, , this is known as
B. weakening basis.
56
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. arbitrage
57
An increase in the U.S. exchange rate causes domestic goods to become
more expensive for consumers abroad.
58
Which of the following considerations would factor into storing pecans but not cotton?
Perishability
59
If the Volkstads expand into feeder cattle and wish to hedge against future corn price increases, which of these actions would accomplish that goal?
Sell a corn futures contract
60
The difference between the cash price and the futures price is called the
basis
61
Marketing margin is calculated as the per unit sale price less the per unit
production cost.
62
If Volkstad Pecan Company were to add online sales to their operation, this would be an example of ______ integration.
vertical
63
23. 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?
abor requirements B. Equipment needs C. Pest control costs
64
The main thing to keep in mind with regard to income tax management is to
maximize after tax income.
65
Effective tax planning requires
knowing personal financial goals. B. up-to-date records. C. reliable long-range projections.
66
The most common accounting method used by farmers for taxes.
Cash
67
assets, other than land and some livestock, used in farming that have a useful life of more than one year are
D. depreciable.
68
Place the letters in the box of all the items that would increase a farm’s taxable income.
Sell two semi loads of soybeans, se straight-line depreciation versus MACRS depreciation, Delay paying open accounts
69
Which person below is required to pay social security taxes?
Parent who works for his child’s corporation
70
The taxes that may be due when a person dies.
Estate taxes
71
The standard deduction for a married couple in 2018 is
24000
72
The personal exemption in 2018 is
0.00
73
Farmers that do not pay income tax quarterly or file an estimate must file and pay by
Mar 1
74
When a farmer trades in a piece of equipment, it is
A. treated as a sale.
75
When a new or used capital item is purchased and no section 179 is taken, then
The entire amount is placed on the depreciation schedule.
76
For an amortized loan, which of the following increases each year
C. principal payment
77
What is the total cash outlay on this note?
the total amount of money paid to the lender
78
What is lender repossession?
Losing the asset for non-payment
79
An amortization table and loan documents are what a lender provides the borrower with each loan to disclose the
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
The principal and interest amounts in each of the payments on this note will always be the same.
False
81
Which of the following is an example of financial risk that applies to Volkstad Pecan Company?
change in interest rates
82
hich of the following is an example of legal risk?
change in tariff rates and food export regulations
83
Which of the following best describes risk avoidance?
Ending an activity to eliminate the possibility of a loss
84
___________ is an example of risk transfer.
A. An insurance policy
85
A solvency ratio is a measure of __________ risk.
. Financial
86
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?
0.9
87
Adopting an appropriate integrated pest management system mitigates __________ risk.
E. production
88
Which of the following is an example of market risk that applies to Volkstad Pecan Company?
A change in pecan prices, change in consumers’ tastes and preferences for organic products
89
A worker’s compensation insurance policy is an appropriate treatment for a farm’s _____________ risk
. human
90
A farmer who wants to establish a price floor for corn to be received at harvest would
buy a put option.
91
11. A farmer would use the futures market with the objective to
transfer risk
92
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?
Sell futures contracts expecting to buy them back when the soybeans are sold.
93
After the farmer is hedged in Question #12, what is the only factor that could change the price received?
A change in the basis.
94
When hedging, it is important that farmers close out both the cash and futures position
simultaneously when selling the crop.
95
To hedge using commodity futures, a farmer must
use a broker. B. create a margin account.
96
A farmer uses revenue protection insurance to protect a corn crop. This type of insurance would protect against
B. low yields and low prices.
97
The yield protection in revenue protection insurance is based on
the farm’s actual production history of yields.
98
The price protection in revenue protection insurance is based upon
the futures market
99
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?
forward contract B. A production contract
100
Which of the following is not one of the steps in the risk management process?
A. Identify B. Monitor C. Plan D. Prioritize
101
Which of the following risks should be avoided?
high frequency and high severity risk
102
If Volkstad Pecan Company decided to join with other pecan growers to start a pecan shelling plant, which type of cooperative should they form?
Processing
103
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 trust
104
Which of the following is a benefit of a corporate business structure?
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
he most commonly used type of business organization for US farms and ranches is the _____.
. sole proprietorship
106
Choosing to organize a business as a(n) __________ provides entrepreneurs with the greatest access to capital.
A. corporation
107
Of the types of business organizations listed below, which would provide the least protection from legal liability to the owners?
D. General Partnership
108
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?
C. Sole Proprietorship
109
n owner of a corporation is also called a(n) _____.
stockholder
110
n owner of a Limited Liability Company is also called a(n) _____.
member
111
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 for business owners.
112
According to the IRS code, owners of an S-Corporation must be US citizens
T
113
According to IRS rules, C-Corporations may not have more than 100 stockholders.
F
114
Cooperatives are owned and controlled by their member-patrons and the profits earned by the cooperative are returned to the members based on patronage.
T
115
Cooperatives allow farmers and ranchers to gain market power by combining their resources.
T
116
Trusts are a particularly useful form of business organization for estate planning purposes.
T
117
Thomas Jefferson authorized a system of land measurements to define locations of properties in the western territory for which of these main reasons?
. So that private ownership of property could be easily defined. B. So that property could be exchanged to another owner more easily.
118
2. How many sections are in a township?
36
119
The purpose of a school section was to plan ahead for land settlements so that
. children wouldn’t have to travel far to school. B. the sections would become the property of the state.
120
When interpreting a legal land description, you
. read it backwards. B. locate the section in the township. C. find the location in the quarter.
121
The range refers to columns of townships running north and south (quadrangle).
T
122
Some properties in the U.S. do not have a form of legal land description.
F
123
A tier refers to the townships running east and west in six-mile increments.
T
124
The curvature of the earth causes a need to include correctional sections in legal descriptions.
A. True
125
Generally, parcels of land that are located in a city subdivision are legally described by using
. recorded plats
126
Property in most towns and cities on the East coast generally use the metes and bounds survey system.
T
127
“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?
Metes and Bounds
128
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?
Rectangular Survey
129
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?
E. None of the above
130
The Operating Expense Ratio is a financial factor that represents
Operating expense in comparison to Gross Farm Income.
131
n which category does the Volkstad family spend less per person than the area average?
Utilities
132
What is the largest family living expenditure item for the Volkstad family?
Nonfarm real estate purchases
133
Which expense listed below would be the easiest to reduce?
Recreation
134
The area average spends at least seven percent of the total cash family living expense on which category?
Medical care
135
Which expense item listed below would be the most difficult to reduce?
Income taxes
136
the production function decision rule for moving from stage one to stage two.
. Marginal Product = Average Product.
137
The production function is the
physical relationship between inputs and output.
138
3. The term output divided by input is known as
Avg. product
139
To mathematically determine the least cost combination of two inputs, you will find where
the marginal rate of substitution equals the price ratio.
140
Maximum profit will be obtained when variable input is added until
value of marginal product equals input price.
141
Diminishing returns begin to develop in
stage two of the production function.
142
For the Volkstad Pecan Company, the cost of fertilizer can best be described as a(an)
variable cost.
143
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
