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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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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2.
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Income earned or expenses incurred but not yet received or paid are known
as:
a. | spent income or expenses | c. | recorded income or
expenses | b. | accrued income or expenses | d. | cash income or expenses |
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3.
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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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4.
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One advantage of incorporating the family farm business is:
a. | the need to keep fewer records | c. | double taxation | b. | limited
liability | d. | fewer regulations
and rules to follow |
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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
worth. |
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6.
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An accrued liability that must be paid within the year is a:
a. | current asset | c. | non-current asset | b. | current liability | d. | non-current
liability |
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7.
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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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8.
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If grain sorghum has 97% of the feeding value of corn on a pound-for-pound basis
and corn is selling for $2.25 per bushel (a bushel of corn weighs 56 pounds) then a hundredweight of
grain sorghum is worth _______.
a. | $2.18 | b. | $3.65 | c. | $3.90 | d. | $4.02 |
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9.
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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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10.
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The ability for a farm business to pay all its debts if it was liquidated at a
given point is:
a. | risk | b. | turnover | c. | margin | d. | solvency |
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11.
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The difference between net worth and total assets is
a. | Capital gain | b. | Capital loss | c. | Total Liabilities | d. | Net
profit |
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12.
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A business which is highly leveraged is one which has:
a. | a large debt relative to net worth | c. | a large net farm
income | b. | many current liabilities | d. | a high equity to asset ratio |
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13.
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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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14.
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A manager with a 1:1 debt to equity ratio with a need for a high level of life
insurance protection per dollar of premium should purchase:
a. | a limited-pay life policy | c. | an endowment
policy | b. | a straight-life policy | d. | a term policy |
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15.
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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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16.
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The percent return on equity (ROE) measures the percent return on:
a. | total liabilities | c. | net worth | b. | net farm income from
operations | d. | total
assets |
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17.
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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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18.
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A demand curve shows the relationship between quantity purchased and:
a. | quality | c. | income | b. | price | d. | supply |
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19.
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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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20.
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As output increases, average fixed costs will:
a. | remain constant | c. | decrease | b. | increase | d. | decrease and then
increase |
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21.
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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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22.
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A lease between a landlord and a tenant is equitable if the lease _____
a. | divides gross returns equally between the landlord and the tenant | b. | is written by an
agricultural attorney | c. | holds strictly to traditional lease rates in
the area | d. | divides the income between the landlord and the tenant according to the contribution
of each. |
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23.
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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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24.
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The financial condition of a business at a specific point in time is shown on
_______
a. | a net worth statement | c. | a cash flow statement | b. | an income
statement | d. | a depreciation
schedule |
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25.
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The most important reason for a complete farm record keeping system 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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26.
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Which of the following criteria for ranking investments considers the time value
of money?
a. | simple rate of return method | c. | the extrapolation
method | b. | payback method | d. | net present value method |
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27.
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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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28.
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The financial statement which is used to list assets, liabilities and
owner’s equity of a farm business is the:
a. | balance sheet | c. | partial budget | b. | income statement | d. | cash flow
statement |
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29.
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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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30.
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In order to maximize profits, a farmer should produce at a level where:
a. | marginal profit equals marginal costs | b. | marginal revenue equals marginal
profit | c. | average variable costs equals average fixed costs | d. | marginal costs
equals marginal revenue |
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31.
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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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32.
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Working capital is calculated by:
a. | subtracting current assets from total assets | b. | dividing current
assets by current liabilities | c. | dividing total liabilities by total
assets | d. | subtracting current liabilities from current assets |
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33.
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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 cost of
production | d. | Total revenue exceeds interest and principal on loan needed for production
costs |
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34.
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The difference between the local cash price of a commodity and the futures price
of that commodity is called?
a. | margin | b. | put option | c. | spread | d. | basis |
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35.
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The objective of determining repayment capacity for a farm or ranch business
should be
a. | To determine return to 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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36.
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The current ratio is used to determine
a. | profitability | b. | equity | c. | liquidity | d. | solvency |
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37.
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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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38.
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The price where consumers are willing to buy all that producers are willing to
supply to a given market is called the:
a. | equilibrium price | c. | support price | b. | strike price | d. | commodity price |
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39.
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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 costs |
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40.
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A farmer who wants the right but not the obligation to sell a particular
commodity at a specific price level would use a :
a. | basis contract | c. | call option | b. | put option | d. | cash forward
contract |
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41.
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The amount of commodity, such as beef demanded by consumers, is determined
by
a. | The price of commodity, of competing commodities and per capita
income | b. | Federal market orders | c. | Total production of the commodity during the
year | d. | The consumer price index |
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42.
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An increase in the discount rate due to inflation, everything else being equal,
will have what impact on the present value of a future stream of income?
a. | no impact | c. | decrease the present value | b. | increase the present
value | d. | cannot
determine |
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43.
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Farmer Jones can either sell his corn or feed it to his 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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44.
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If the price of commodity is too low, the quantity demanded will be greater than
the quantity supplied resulting in a:
a. | surplus | b. | boycott | c. | monopoly | d. | shortage |
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45.
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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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46.
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As a farmer plants more acres of a crop, which of the following costs is least
likely to change?
a. | Total variable costs | c. | Average fixed costs per acre | b. | Average variable
costs per acre | d. | Average
total costs per acre |
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47.
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A farmer who has feeder pigs could use the options market to reduce his risk by
a. | Buying a hog put option | c. | Buying a hog call
option | b. | Selling a hog put option | d. | Selling a hog call option |
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48.
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A farm business with declining average total costs has:
a. | increasing returns to scale | c. | constant returns to
scale | b. | decreasing returns to scale | d. | decreasing demand |
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49.
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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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50.
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A decrease net worth could result from _________
a. | decreasing debt | c. | decreasing farm inventory values | b. | increasing
assets | d. | increasing farm
inventory values |
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