Midterm

Question 1

Name sources of capital

Answer 1

Owner Equity

Outside Equity

Credit

Question 2

What are the three types of credit accounts

Answer 2

Accounts Payable

Loans

Line of credit

Question 3

What are loan charecteristics

Answer 3

Length of repayment

Repayment structure

Purpose/use

Types of security

Question 4

What are two methods of asset valuation for balance seets

Answer 4

Cost basis & Market Basis

Question 5

What type of balance sheet would a bank or lender prefer to see

Answer 5

Market basis

Question 6

What are sources of cash inflows

Answer 6

Operating receipts

New loans or borrowed mone

sale of capital assets

Non farm income

Beginning cash balance

Question 7

What are sources of cash outflows

Answer 7

Operating Expenses

Loan Principal payments

Loan interest payments

Purchase of capital assets

Non farm expenses/family withdrawl

Question 8

Will every capital asset have a depreciation schedule
& Why ?

Answer 8

No. Some capital assets do not depreciate like land

Question 9

Will every capital asset have a loan schedule

Answer 9

No. If you purchase the capital asset in its entirety there is no need for a loan schedule

Question 10

Name the depreciated methods

Answer 10

straight line

Declining balance

10% rule

Half year convention

Question 11

What are the forms of business organization that are considered joint ventures

Answer 11

Operating agreement

Partnership

Corporation

Limited Liability Company

Question 12

What are the stages of the business lifecycle

Answer 12

Entry

Growth

Consolidation

Exit

Question 13

the 2 balance sheet relationships for solvency

Answer 13

Net Worth = total assets - total liabilities
Total Assets = Net worth + total liabilities

Question 14

Categorize the balance sheet items (assets/liabilities, current/noncurrent)

Accounts payable Investments in growing crops Real estate loans

Answer 14

Accounts payable = Current liabilities

Investment in growing crops = current asset
(why?)

Real estate loan =current and noncurrent liability

Question 15

Which financial statement is most associated with an interval of time: balance sheet or income statement?

Answer 15

Income Statement

Question 16

Define and interpret two measures of solvency

Answer 16

Net Worth= Total Assets-Total Liabilities

Debt to asset ratio: Total Liabilities/Total Assets

Question 17

Define and interpret two measures of liquidity

Answer 17

Working capital: current assets-current liabilities

Current Ratio: Current assets/Current liabilities

Question 18

What are two methods of constructing income statements ?

Answer 18

Cash basis and Accrual Basis

Question 19

Which type best reflects the true management performance of the business during a calendar year?

Answer 19

Cash basis

Question 20

What is the income statement relationship between revenues, expenses, net farm income (NFI) and net farm income from operations (NFIFO)?

Answer 20

NFIFO (Net Farm Income from Operations):
NFIFO = Revenues - Expenses

NFI (Net Farm Income):
NFI = Revenues - Expenses+/- Gain or Loss from Sale of Capital Assets

Question 21

Name one type of cash inflow that is not counted as revenue on an income statement?

Answer 21

New Loans or other borrowed money

Sale of Capital Assets

Non-Business Income/Personal Investment

Question 22

Name two types of cash outflows that are not counted as expenses on an income statement?

Answer 22

Purchase of New capital Assets

Payment of loan principal

Personal/Family Withdrawls

Question 23

Name a non‐cash expense that is included on the income statement?

Answer 23

Depreciation