Multiple Choice Identify the letter of the choice that best
completes the statement or answers the question.
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1.
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A farmer operating a cash grain farm has constructed a balance sheet and
calculated four ratios. The net capital ration is 6.0:1. The current ration is 5.4:1. The
intermediate ration is 1.6:1. The leverage ration is .74:1. Which of the following is an appropriate
conclusion based on these ratios?
a. | This farmer will not have cash flow problems during the next
year. | b. | The value of borrowed capital is greater than net worth. | c. | Most of the
machinery which the farmer owns has been purchased with borrowed capital. | d. | Net worth is greater
than total liabilities. |
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2.
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Which business would most probably have cash flow difficulties given the
following “current ratios”?
a. | Business A 1:1 | c. | Business C 2:1 | b. | Business B 0.5:1 | d. | Business D 3:1 |
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3.
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If the expected price of lettuce exceeds its marginal cost of production, a
lettuce farmer will probably:
a. | Reduce his production of lettuce | b. | Remain at his present level of
production | c. | Expand his production of lettuce | d. | Reduce labor
costs |
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4.
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Profit will be at its maximum level:
a. | Where marginal revenue is at its maximum level, and marginal cost is at
zero | b. | Where marginal revenue is equal to zero and marginal cost is at its
maximum | c. | Where marginal revenue equals marginal cost | d. | Where marginal
revenue is at its minimum, and marginal cost is at its maximum |
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5.
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Rate of return on investment for a farm business is found by:
a. | Dividing total asset value by total liabilities | b. | Subtracting total
liabilities from total asset value | c. | Dividing return to equity by net
work |
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6.
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The best indication of the amount that a farmer has for family living expenses,
loan repayments and additional investments would be=
a. | a partial budget | c. | a net farm income statement | b. | an inventory change
statement | d. | a net worth
statement |
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7.
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Which of the following statements is not one of the three tests the Internal
Revenue Service applies when looking at prepaid farm expenses?
a. | The expenditure must be a payment --- not a deposit. | b. | The farmer must not
be using the cash basis method of accounting. | c. | The payment must not materially distort the
farmer’s income. | d. | The payment must have a valid business and not
be made to avoid taxes. |
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8.
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The difference between net worth and total assets is
a. | Capital gain | c. | Total liabilities | b. | Capital loss | d. | Net profit |
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9.
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The document which is used to study the growth of a farm over time is
a. | A balance sheet (net worth statement) | c. | A cash flow
statement | b. | An income statement | d. | An inventory statement |
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10.
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Which of the following is the primary purpose of a current ratio?
a. | To determine net worth | b. | To include in your tax
return | c. | To determine your ability to meet immediate financial obligations | d. | To aid in evaluating
your farm profitability |
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11.
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In preparing a cash flow for the coming year, a farmer estimates that cash
inflows exceeds cash outflows for the month of July. This indicates that
a. | the operating loan will likely increase during the month of July | b. | Cash will be
available to reduce the operating loan in July | c. | Family living expenses should be reduced during
the month of July | d. | Net farm income will be higher than last
year |
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12.
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A subchapter S corporation when compared to a subchapter C corporation
will
a. | Allow a farmer to reduce his taxes | b. | Offer better protection against liability
claims | c. | Be the preferred form of farm business incorporation | d. | Be exempt from
federal corporation income tax |
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13.
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If the price of a commodity increases by 5% and the quantity purchased decreases
by 10%, then the demand for this commodity is
a. | Upward sloping | c. | Elastic | b. | Inelastic | d. | Decreasing |
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14.
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The amount of a patronage refund from the cooperative is based upon
a. | How long the member has been in the cooperatives | b. | The amount of
capital stock the member owns | c. | The volume of business the member does with a
cooperative | d. | How well the members get along with the cooperative’s
manager |
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15.
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The cost of producing one additional unit of output is called
a. | Opportunity cost | c. | Average cost | b. | Substitution cost | d. | Marginal cost |
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16.
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Marginal revenue and marginal cost are useful concepts in determining the profit
maximizing output level. Profit will be at its maximum level where
a. | Marginal revenue is at its maximum level and marginal cost equals
zero | b. | Marginal revenue is equal to zero and marginal cost is at its
optimum | c. | Marginal revenue equals marginal cost | d. | Marginal revenue is at its minimum and marginal
cost is at its maximum |
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17.
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Which of the following would tend to reduce the risk for a manager of a farm
business
a. | Selecting the crop with the highest net return | b. | Speculating on the
futures market | c. | Diversifying into several enterprises | d. | Specializing in a single
enterprise |
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18.
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The most important reason for a complete farm record keeping systems should be
a. | provide information for farm management decision making | b. | to answer questions
on insurance claims | c. | to meet the requirements for reporting hired
labor | d. | for income tax reporting |
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19.
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On Nov. 1, I borrowed $3,000 to buy cattle to place in my feedlot. On May 1, I
repaid the $30,000 plus $ 2,250 interest. What rate of interest did I pay?
a. | 8.0% | b. | 10.5% | c. | 15.0% | d. | 16.5% |
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20.
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Which of the following would be expected to result in the largest increase in
the market place?
a. | An increase in demand with no change in supply | b. | A decrease in demand
with an increase in supply | c. | An increase in demand with a decrease in
supply | d. | An increase in supply with no change in demand |
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21.
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You purchased feeder pigs averaging 50 pounds and sold them as slaughter hogs at
200 pounds. Feed cost is $51 per hog. The feed cost per pound of gain was
a. | $0.25 cents | b. | $0.34 cents | c. | $0.37 cents | d. | $0.42
cents |
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22.
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Farmers many times have had low market prices in which costs of production
exceed revenue generated by the farm enterprise. Farmers can continue in the short run only if
a. | total revenue exceeds the fixed costs of production | b. | total revenue
exceeds both fixed and variable costs of production | c. | total revenue exceeds variable costs of
production | d. | total revenue exceeds interest and principal on loan needed for production
costs |
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23.
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The operator is liable for claims on the business, he pays income and all other
taxes. He can obtain loans from the FHA. The business is a
a. | Sole proprietorship | c. | Subchapter S corporation | b. | General
partnership | d. | Regular
corporation |
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24.
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Which of the following is a disadvantage of the partnership form of doing
business?
a. | Initial capital is more easily obtained | b. | There is access to
additional skills | c. | Operating capital is more easily
obtained | d. | There is unlimited liability to equity holders |
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25.
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Ron sold a tractor for $1,000 that had been depreciated out to zero. When
figuring his taxes he must
a. | Not list the thousand dollars since it was totally depreciated | b. | Declare the $1,000
as capital gains | c. | Declare the $1,000 as ordinary income | d. | Declare the $1,000 as non-taxable
income |
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26.
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You provide land worth $185,000 and $12,000 cash. I put $50,000 worth of
machinery, $15,000 in labor, and $47,000 cash. Based on our contributions, my share of $250,000 gross
income is
a. | $112,000 | b. | $135,000 | c. | $90,000 | d. | $125,000 |
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27.
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The objective of determining repayment capacity for a farm or ranch business
should be
a. | To determine return on land, labor and management for the farm
business | b. | To determine how much debt the business can safely handle | c. | To determine the
rate of return to the farmer’s equity capital | d. | To determine the net worth of the business for
the end of the year. |
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28.
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A farmer using the accrual system of accounting purchases gasoline on credit.
The gasoline purchases should
a. | Not be recorded since it has not been paid for. | b. | Be recorded as a
liability with no other entries made. | c. | Be recorded as an expense with no other entries
made. | d. | Be recorded as an expense and also a liability. |
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29.
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An enterprise system of accounts
a. | Separates taxable income from nontaxable. | b. | Differentiates
between the value of operators labor, management and capital. | c. | Involves keeping
records of receipts and expenses for each product or enterprise. | d. | Is required for
income tax purposes. |
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30.
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The purpose of calculating efficiency factors is to
a. | Eliminate unprofitable enterprises | b. | Get a more accurate picture of return to
management | c. | Identify operational changes giving operator a likelihood of
success | d. | Determine salary adjustments for employees |
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31.
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What would be the best measure to use to compare the profitability of two
farms?
a. | Debt-asset ratio | c. | Gross farm income | b. | Ratio of return to equity
capital | d. | Gross farm income
minus capital gains |
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32.
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Which of the following best describes an operating statement? (Other names may
include income and expense statement, profit and loss statement and income statement.)
a. | Cash and capital income minus cash and capital expenses give net
income | b. | Income minus expenses give cash income and non-cash adjustments | c. | Listing of assets
and liabilities, the being owner equity | d. | Cash and capital income minus cash and capital
sales: difference is net capital flow |
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33.
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You are hired to determine if a neighboring farm is over-capitalized. You report
to the bank that yes, it is over-capitalized; in other words, the farm operator is
a. | late in making his loan payments | b. | has more machinery than he really
does | c. | has large crop inventories | d. | has above average variable
cost |
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34.
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When calculating the value of feed fed to livestock, home grown feed should be
valued according to
a. | Cost of production | c. | Amount of gain the feed produced | b. | Purchase price of
similar feed | d. | Market price
minus selling price |
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35.
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Accrued interest on a balance sheet refers to
a. | Interest that is past due | b. | Interest that has accumulated since the last
loan payment | c. | Interest on short term debt | d. | Interest forgiven by the
lender |
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36.
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Which of the following is an advantage of forward contracting with an individual
buyer as opposed to hedging in the futures market?
a. | A forward contract typically offers a higher price than the futures
market | b. | Easier to avoid delivery on forward contract because you are dealing
locally | c. | Forward contract typically offers a more certain price than does
hedging | d. | A forward contract does not represent a legal obligation to
deliver |
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37.
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The amount of a commodity, such as beef demanded by consumers, is determined
by
a. | the price of the commodity, of competing commodities and per capita
income | b. | federal market orders | c. | total reduction of the commodity during the
year | d. | the consumer price index |
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38.
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Farmer Jones can either sell his corn or feed it to is cattle. In deciding which
alternative will yield the highest profit, he should compare
a. | the price of corn with the price of cattle | b. | the price of corn
minus hauling costs to the increase in value of the cattle | c. | cost of hauling corn
to market with cost of hauling heavier cattle to market | d. | the current price of
corn with the cost of storing six months |
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39.
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The demand curve represents a relationship between
a. | total cost and total revenue | c. | price and quality
produced | b. | price and quantity produced | d. | profits and losses |
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40.
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If a hedger is to carry through to completion, the hedges
a. | will always make a profit | b. | will always deliver the hedged commodity to the
local elevator | c. | must be prepared to meet all margin calls | d. | will take a higher
risk |
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41.
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The nearby hog futures contract closed at $49.80 with a local basis of $1.85.
The local cash market was
a. | $47.95 | b. | $49.80 | c. | $50.00 | d. | $51.65 |
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42.
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A farmer who as feeder pigs could use the options market to reduce his risk
by
a. | buying a hog put options | c. | buying a hog call
option | b. | selling a hog put options | d. | selling a hog call option |
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43.
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The purchase of a put option on corn means the buyer
a. | Is required to sell a corn futures contract at a set price | b. | May, but is not
required to sell a corn futures contract at a set price | c. | May, but is not
required to buy a corn futures contract at a set price | d. | Is required to buy a corn futures contract at a
set price |
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44.
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Which of the following would indicate a use for partial budgeting?
a. | Calculating last year’s state and federal income taxes | b. | Deciding whether to
harvest corn as grain or silage | c. | Determine the current net worth of he farm
business | d. | Deciding whether or not to depreciate the cost of a new
combine |
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45.
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In preparing a partial budget.......
a. | Only those costs and returns that change with a new way of business
are | b. | It is necessary to estimate the total costs and total receipts to determine the
anticipated change in income | c. | Fixed and variable costs should not be
considered | d. | All of these are correct |
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46.
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What would be the net gain of loss of changing from a cash grain farm to a beef
farm if crop receipts are down $9,000---crop costs are down $5,000---beef receipts are up $18,000 and
beef costs are up $10,000?
a. | Gain $4,000 | c. | Gain $23,000 | b. | Gain $16,000 | d. | Loss $18,000 |
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47.
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At harvest time a farmer has invested $40/acre for labor-seed-and machinery
costs. What should he do if he expects a 20 bu/acre yield-a market price of $2/bu and it costs
$14/acre to harvest the crop.
a. | Harvest and sell the crop | b. | Sell the oat crop as pasture of
$5/acre | c. | Sell the oat crop for hay at $6/acre | d. | Assume his loss of $40/acre and leave the crop
in the field |
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48.
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What information does a projected cash flow budget for the coming year
provide?
a. | Rate of return on farm investments | b. | Net worth of the farm
business | c. | Total investment credit that will be allowed during the year | d. | Projected borrowing
requirements and repayment ability for the farm business |
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49.
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A projection of all income and expenses associated with growing an acre of a
particular crop would be called
a. | A partial budget | c. | A whole farm budget | b. | An enterprise budget | d. | A balancing
budget |
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50.
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A constant payment loan with payments consisting of principal and interest is
called:
a. | An amortized loan | c. | A capital loan | b. | A discounted loan | d. | A fixed rate
loan |
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