RRF Test 2

Question 1

Current Ratio

Answer 1

Total current assets : total current liabilities

Question 2

Current Debt Ratio

Answer 2

total current liabilites : total liabilities

Question 3

Current debt-to-worth ratio

Answer 3

total current liabilities : net worth

Question 4

Leverage ratio

Answer 4

Total Liabilitites : net worth

Question 5

Equity value ratio

Answer 5

net worth : total assets

Question 6

Net capital ratio

Answer 6

Total assets : total liabilites

Question 7

Purpose of an income statement

Answer 7

Show profitability

Question 8

What is a liability

Answer 8

Current debt

Question 9

What is the key document for getting a loan?

Answer 9

Networth statement

Question 10

What 2 things does a net worth statement show?

Answer 10

Liquidity and solvency

Question 11

Use of Income statement

Answer 11

Determine earnings, provide material for managment, information necessary for income tax return

Question 12

Is borrowed capital considered income?

Answer 12

No

Question 13

Is interest an operating expense?

Answer 13

Yes

Question 14

Who determines the interests rates?

Answer 14

Federal Reserve System (The Fed)

Question 15

Structure of “The Fed”

Answer 15

Board of governors, 7 members.

Question 16

Define Prime rate

Answer 16

Interest rate charged by lenders to best customers

Question 17

Line of credit

Answer 17

agreement to lend an amount of money in future. Interest rates frequently keyed to prime.

Question 18

Third party hedge agreement

Answer 18

Between the Lender, rancher, and broker. Agreement that the lender will pay the margin calls when the market changes.

Question 19

Define a lien

Answer 19

Mortgage or security interest

Question 20

Financing statement

Answer 20

Agreement between lender and borrower showing description of tangible collateral used to secure loan. Usually filed for public record.

Question 21

What are the 5 C’s

Answer 21

Character, Capital, Collateral, Conditions, Capacity

Question 22

What do bankers use during an application analysis?

Answer 22

The 5 C’s

Question 23

What may cause a breakdown in payments to bank

Answer 23

Size, Managment and poor production, high production cost, too much spending, and low pricing.

Question 24

Define Depreciation

Answer 24

a method of arriving at the current value of a capital asset

Question 25

Purpose of depreciation?

Answer 25

estimate current value, calculate expense, adjust taxable income

Question 26

Causes of depreciation

Answer 26

Wear and tear, absolescence,Deterioration

Question 27

Requirements to be depreciable

Answer 27

Used in business, have a determinable useful life longer than one year, must wear out or decay or lose value naturally.

Question 28

Recovery Property

Answer 28

property eligible for depreciation when plced in one of seven classes of assets.

Question 29

Depreciation schedule

Answer 29

organized listing of each capital asset used to accumulate depreciation

Question 30

Two methods of depreciation

Answer 30

Straight line method and Declining balance method

Question 31

Define inventory

Answer 31

A listing of all assets and liabilities and their values at a specified date

Question 32

Uses of Inventory

Answer 32

develop a net worth statement, tax reporting purposes, and financial planing and business analysis, depreciation schedule.

Question 33

1099 forms

Answer 33

Typically for day workers. Ask for SS# on Day 1

Question 34

1040 form

Answer 34

regular tax form. Most important

Question 35

Cash Method accounting system

Answer 35

Entries made onlly after cash has exchanged hands. Doesn’t use inventory

Question 36

Accrual Method accounting systems

Answer 36

Transactions are recorded when binding whether money exchanges hands or not. Cant be used unless inventories are kept.

Question 37

2 methods for an accounting system

Answer 37

Cash method, Accrual method