Chapter 1 Multiple Choice 1. One force that has helped cause U.S.

farms to become larger and fewer is: a. Competition from foreign producers b. Lower production costs per unit by spreading fixed in estment technology o er more units c. More labor used in agricultural production d. !eclining nonfarm wage rates ". #mpro ed data collection technology such as satellite photography will be most helpful to farm managers for: a. $reparing up%to%date financial statements b. &alancing li estoc' rations c. $rescribing fertility and pest control practices for smaller land units d. $roducing more uniform products (. Standardi)ation of farm financial ratios and accounting practices will help farm managers: a. Compete with nonfarm businesses for capital b. Summari)e their account boo's in less time c. $ay less income tax d. Manage hired employees more effecti ely *. +gricultural processors will probably want more uniform products in the future in order to: a. $ay lower prices to producers b. !i ersify their product lines c. ,educe en ironmental contamination d. Ma'e more efficient use of processing and pac'aging e-uipment .. &y forming strategic alliances/ small and medium%si)ed farmers and rancher can: a. #ncrease their managerial freedom b. +chie e ad antages of di ersification c. +chie e mar'eting ad antages that larger operations en0oy d. #ncrease their own olume of production 1. +n increase in the number of nonfarmers li ing in rural areas will cause: a. 2armland alues to decrease b. 2armers to pay more attention to off%farm effects of their production practices c. Less regulation of agricultural production practices d. $rofit maximi)ation to be the only criterion for adopting new technologies 3rue42alse F 1. #n the future farm managers will ha e to be concerned about the

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". (. *. ..

en ironmental effects of their practices on their own farms but not away from their own farm Standardi)ed accounting practices for farming operations will ma'e comparisons with other farms and nonfarm businesses more meaningful One of the most important areas in which ad ances in electronics can help farm managers is in collecting the raw data needed to ma'e better decisions Since farm managers will be ma'ing the same basic types of decisions in the "1st century as they do no/ they can rely on rules of thumb to guide their actions. $roduct differentiation means producing crops and li estoc' with different characteristics for specific mar'ets.

Chapter " Multiple Choice 1. 5hich function of management is concerned with monitoring the results of a decision and ta'ing correcti e action6 a. $lanning b. #mplementation c. Control d. Organi)ation ". 5hich of the following shows the proper se-uence of management functions as they would be applied to a specific problem6 a. $lanning/ control/ implementation b. $lanning/ implementation/ control c. Control/ planning/ implementation d. Control/ implementation/ planning (. 3he mission statement of a farm or ranch business describes a. #ts financial condition b. #ts daily chores c. #ts cultural alues d. #ts reason for existing *. 7doubling the number of acres farmed in 18 years9 is an example of a a. Long run goal b. Short%run goal c. $lan d. 2arm organi)ation .. 5hich of the following is an example of a strategic decision6 a. !etermining fertili)er le els for crops b. !eciding when to sell grain c. !etermining what crops and li estoc' to produce d. Setting mil'ing times for a dairy 1. 5hich of the following is an example of a tactical decision6 a. &alancing a li estoc' ration b. 2orming a partnership with a relati e c. :oining a feeder pig cooperati e d. #nstalling an irrigation system ;. 75hat managers do9 is best described by which of the following6 a. <ather information b. Ma'e decisions c. +naly)e data

d. Organi)e the farm =. >xternal scanning could include assessing a. 3he financial condition of the business b. Changes in consumer tastes c. 3he basic alues of the managers d. $roducti ity of the farmland owned ?. One characteristic that ma'es decision ma'ing in agriculture different from other types of business is a. More go ernment regulation b. $re alence of ery large business units c. $redictability of production processes d. 2ixed supply of a ma0or resource 18. 3he term of describing how much time is a ailable to ma'e a decision is a. #mminence b. ,e ocability c. 2re-uency d. #mportance 3rue42alse F T F F F F T F T F 1. Short%run planning is more important than long%run planning ". <oals must be 'nown before management decisions can be made. (. &ecause weather and prices are unpredictable/ it is impossible to plan more than one year in ad ance. *. Strategic planning only needs to be done by beginning farmers and ranchers. .. @o management decision should be made until all possible information has been ac-uired. 1. Maximi)ing profit is the only goal managers use to ma'e decisions. ;. More time should be spent on irre ocable decisions than on those which can be easily re ersed. =. farm and ranch managers can usually set the selling prices for their products. ?. > en choosing the best alternati e action will sometimes produce undesirable results. 18. &iological production processes are more predictable than industrial production processes

Chapter ( Multiple Choice 1. + fiscal accounting period is one which a. Co ers :anuary 1 through !ecember (1 b. #s only ( months in length c. >nds on any date other than !ecember (1 d. Can only be used by go ernmental agencies ". Selling grain from storage would be which typeAsB of farm business acti ity6 a. Operating b. #n estment c. 2inancing d. Operating and in estment (. 5hen using cash accounting which of the following accounts would ne er be used6 a. <rain sales b. !epreciation c. 2ertili)er purchases d. +ccounts payable *. + prepaid expense is one where payment is made a. &y chec' b. #n an accounting period prior to the one in which the purchased item will be used to produce income c. #n a series of payments o er time d. &efore the bill is e en recei ed .. 5hich of the following would not be recorded when using a single%entry/ cash accounting system6 a. Charging C"/888 worth of chemicals at the farm supply store b. &illing a neighbor C=.8 for baling hay c. ,ecogni)ing that C(/*;1.(* of interest has accrued since the last interest payment d. +ll of the abo e 1. One ad antage of a double%entry accrual accounting system o er a single%entry cash system is a. #t is easier to enter transactions b. + current balance sheet is always a ailable c. @oncash transactions do not need to be entered d. #t can be done on a computer ;. +ny item of alue is called aAnB a. Owner e-uity b. Credit

c. $rofit d. +sset =. +t the end of the year a farmer has an unpaid bill at the local machinery repair shop. #t would be shown in an accrual accounting system as aAnB a. $repaid expense b. +ccount recei able c. +ccount payable d. +ccrued expense ?. + ma0or ad antage of accrual accounting o er cash accounting is a. + more accurate estimate of annual profit b. Simplicity c. +lways shows a higher profit d. Can use single entry instead of double entry 3rue42alse F T F T F T T F F T F T 1. +n accounting period must be from :anuary 1 to !ecember (1. ". <ood farm records can be useful when applying for a farm loan. (. +n accounting system only needs to be able to record those transactions which are part of the farmDs production acti ities. *. !epreciation is a noncash expense which is included as an expense when using cash accounting. .. ,e enue and expenses can be properly matched in the correct time period when using cash accounting. 1. + single%entry accounting system does not maintain current alues for assets and liabilities. ;. + depreciation schedule is a necessary part of a complete accounting system. =. ,ecords are of no use when trying to obtain a new loan. ?. 3he basic accounting e-uation is: +ssets E Liabilities F Owner e-uity. 18. Changes in in entory alues are not included in a cash accounting system. 11. Cash accounting will always show a lower profit than accrual accounting. 1". $rofit or net farm income is e-ual to total re enue for the accounting period minus total expenses for the same period.

Chapter ( Multiple Choice 1. 3he depreciation method with the greatest depreciation in the first year is a. !ouble declining balance b. Sum%of%yearDs digits c. Straight line d. +ll of the abo e ha e the same depreciation in the first year ". 5hich of the following cannot be alued using the cost less accumulated depreciation method6 a. 3ractor b. &arn c. $urchased dairy cow d. Land (. 3he proper term for the alue found by subtracting accumulated depreciation from the assetDs original cost is a. Sal age alue b. Mar'et alue c. &oo' alue d. Use alue *. 3he total depreciation o er an assetDs useful life is e-ual to a. Cost minus sal age alue b. Cost plus sal age alue c. &oo' alue d. Sal age alue .. 3o be depreciable/ an asset must ha e a useful life a. More than ten years b. 2i e years or more c. More than one year d. Six months or longer 1. 3he depreciation method with the smallest annual depreciation in the first year of life is a. Straight line b. Sum%of%yearDs digits c. !ouble declining balance d. 1.8G declining balance ;. + depreciable assetDs boo' alue will e-ual its sal age alue a. Only on the purchase date b. Only at the midpoint of its useful life c. Only at the end of its useful life

d. > ery year of its useful life 3rue42alse F F T T F T T F F T 1. &oo' alue is e-ual to cost minus sal age alue. ". Mar'et alue is the most conser ati e aluation method to use during periods of inflation. (. +ll depreciation methods will result in the same total depreciation o er the full life of the asset. *. #t is possible for an asset to ha e a C8 sal age alue. .. &oo' alue and mar'et alue will always be the same dollar amount. 1. &oo' alue will e-ual sal age alue at the end of the assetDs useful life. ;. Using the sum%of%yearDs digits depreciation method/ annual depreciation will decline by a constant amount each year. =. + tractor can be alued using the farm production cost method. ?. 3he mar'et alue of an asset cannot be lower than its cost. 18. Cost less depreciation cannot be used to alue purchased feeder li estoc'.

Chapter . Multiple Choice 1. 5hich of the following is an example of a noncurrent liability6 a. 2arm machinery b. Loan on feeder li estoc' c. Loan on farm machinery d. $repaid expense ". 5hich of the following is an example of a current asset6 a. !airy cows b. 2arm buildings c. 2arm machinery d. @one of the abo e (. +nother term which has the same meaning as ownerDs e-uity is a. @et worth b. @et farm income c. 3otal asset alue d. 3otal liabilities *. Of the following/ which is the most li-uid asset6 a. 2arm machinery b. &alance in chec'ing account c. &reeding li estoc' d. 2eeder li estoc' .. #f a business has wor'ing capital greater than C8/ its current ratio will be a. <reater than one b. >-ual to one c. Less than one d. 3here is no relationship between the amount of wor'ing capital and the current ratio 1. #f the debt4asset ratio is increasing/ then the debt4e-uity ratio will be a. #ncreasing b. !ecreasing c. Constant d. #ndeterminate/ need more information ;. 5hich of the following best describes a balance sheet6 a. #t shows changes in assets and liabilities o er the last accounting period b. #t shows changes in assets and liabilities o er a period of time c. #t shows assets and liabilities at a point in time

d. #t shows profit for the last account period =. 3he best description of a business which has increased its debt4asset ratio is one which has a. $urchased more assets b. Sold some assets c. #ncreased its debt d. #ncreased its debt relati e to total assets ?. 5hich of the following assets would ha e the same alue using either a cost or a mar'et basis aluation6 a. Land b. Machinery c. $repaid expenses d. $urchased breeding li estoc' 18. 3he degree to which a farmDs assets ade-uately co er or exceed it liabilities is referred to as a. Sol ency b. $rofitability c. Li-uidity d. 5or'ing capital 11. + statement of owner e-uity shows a. + list of all assets and liabilities b. 3he aluation ad0ustment for owner e-uity c. Owner e-uity for the past "8 years d. 3he sources and amounts of changes in owner e-uity 3rue42alse T T F T F T F F T 1. 3he three ma0or components of a balance sheet are assets/ liabilities and ownerDs e-uity. ". 3he 2arm 2inancial Standards Council recommends only two classes of assets/ current and noncurrent. (. 3he primary purpose of a balance sheet is to measure and record net farm income. *. On a cost basis balance sheet/ machinery would be alued at cost less accumulated depreciation. .. 5or'ing capital is one measure of sol ency. 1. #n entories of grain and feeder li estoc' would be alued at mar'et on either a cost or mar'et basis balance sheet. ;. #f total asset alue increases/ owner e-uity will also increase. =. &orrowing C"8/888 to purchase additional dairy cows will decrease owner e-uity. ?. Current liabilities are debts which must be paid in full within one year from

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the date of the balance sheet. 18. On a cost basis balance sheet/ owner e-uity will increase if land alues increase. 11. @oncurrent assets ha e a useful life of more than one year.

Chapter 1 Multiple Choice 1. @et farm income less family li ing expenses and income taxes e-uals: a. Owner e-uity b. ,etained farm earnings c. 3otal liabilities d. 3otal assets ". 5hich of the following would not be included as an expense on an accrual income statement6 a. !epreciation b. Change in accounts payable c. +ccrued interest d. Cost of a new farm pic'up (. How does the sale of an old tractor affect an income statement6 a. #ncreases re enue by the amount recei ed for the tractor b. #ncreases AdecreasesB re enue by the amount of gain AlossB c. #ncreases re enue by the amount of depreciation ta'en o er its life d. Has no effect on an income statement *. #f return on assets is greater than return on e-uity/ the interest rate on borrowed money was a. Higher than return on assets b. Lower than return on assets c. >-ual to return on assets d. >-ual to return on e-uity .. 3he purpose of a farm income statement is a. 3o compute assets and liabilities o er an accounting period b. 3o compute owner e-uity at a point in time c. 3o show re enue/ expenses/ and net farm income for an accounting period d. 3o show all family income 1. +n increase in prepaid expenses shows up on an income statement as a. +n increase in re enue b. + decrease in re enue c. +n increase in expenses d. + decrease in expenses ;. 3he best return to management of the following would be a. <reater than the opportunity cost of management b. >-ual to )ero c. <reater than )ero

d. @egati e =. 5hich of the following is not included in the re enue section of an income statement6 a. +n in entory decrease b. +n increase in the mar'et alue of land c. <ain on the sale of breeding li estoc' d. +n increase in accounts recei able ?. + gain on the sale of a depreciable asset implies a. #ts sal age alue is )ero b. #ts boo' alue is )ero c. 3oo little depreciated was ta'en o er its life d. 3oo much depreciation was ta'en o er its life 18. +ny difference between net farm income and net farm income fromoperations is due to a. <ain or loss on the sale of machinery or land b. #nterest expense c. #n entory change d. !epreciation 3rue42alse F T T T F F T F F T 1. ,etained farm earnings cannot be negati e. ". !epreciation is a noncash expense but is included on a cash basis income statement. (. @et farm income helps explain changes in owner e-uity. *. Changes in in entory alue are needed to compute an accurate net farm income. .. Only the cash used for the down payment is included as an expense on an income statement. 1. + farm business would be considered 7profitable9 any year net farm income is positi e. ;. +n increase in accrued interest will increase total farm expenses for the year. =. @et farm income fromoperations includes any gain or loss on the sale of land. ?. Owner e-uity will increase any year there is a positi e net farm income. 18. +ny accrued but unpaid expense is included as an expense when computing net farm income.

Chapter ; Multiple Choice 1. #f the marginal physical product is decreasing with additional input/ marginal alue product will be a. #ncreasing b. !ecreasing c. Constant d. !ecreasing and e-ual to M$$ ". #n Stage ## of a production function/ marginal physical product will be a. #ncreasing b. !ecreasing c. @egati e d. >-ual to )ero (. 3he relationship between input and output in a production function is shown in a. 3he appropriate physical units b. 3erms of total cost and total re enue c. 3erms of total input cost and total alue product d. $rice of input and price of output *. 3he e-uation for computing marginal cost is a. 3otal cost di ided by output b. 3otal cost di ided by input c. Change in total cost di ided by change in input d. Change in total cost di ided by change in output .. #f a farmer is producing at some point where M, is greater than MC and input is not limited a. $rofit is not being maximi)ed b. More input should be used to maximi)e profit c. More output should be produced to maximi)e profit d. +ll of the abo e 1. #f M$$ is less than +$$/ then +$$ a. #s decreasing b. #s increasing c. #s constant d. May be doing any of the abo e ;. #f the price of the input decreases/ a profit maximi)ing farmer should a. Use more input and produce more output b. Use more input and produce less output c. Use less input and produce more output

d. Use less input and produce less output =. 3he >-ual Marginal $rincipal should be used whene er a. #nput prices are high b. Output prices are low c. 3here is limited input and se eral alternati e uses for it d. + farmer wishes to maximi)e production from se eral different enterprises ?. + diminishing marginal physical product occurs because of a. !ecreasing output prices b. #ncreasing input prices c. !ecreasing input prices d. Limits on physical or biological response to increased input le els 18. $rofit is maximi)ed somewhere in the range where a marginal physical product is a. !ecreasing but still positi e b. #ncreasing but positi e c. Constant d. @egati e 3rue42alse F T T F T T F T F F 1. $rofit will increase any time more input is used. ". +s a general rule/ if the price of the output increases/ you should use more input to maximi)e profit. (. #f M$$ is increasing/ MI$ will also be increasing. *. Marginal cost is e-ual to the input price as long as that prices is constant. .. 5hen the e-ual marginal principle is used correctly/ the final MI$ for each alternati e will all e-ual each other and all be greater than M#C. 1. 2or 3he Law of !iminishing ,eturns to wor'/ there must be at one fixed input. ;. #f MI$ is less than M#C/ there is a negati e profit. =. !oubling both input and output price will not change the profit maximi)ing input and output le els. ?. + erage physical product will continually increase as more input is used. 18. Marginal cost is e-ual to the change in total cost di ided by the change in input.

Chapter = Multiple Choice 1. +n iso-uant cur e will a. Slope downward b. Slope upward c. &e hori)ontal d. +ny of the abo e depending upon the input prices ". Supplementary enterprises are those where a. 3he output of one can be increased only by reducing the output of another b. 3he output of both enterprises can be increased at the same time c. 3he output of one can be increased with no change in the output of the other d. 3heir substitution ratio is decreasing (. #f two inputs ha e a constant substitution ratio/ the least%cost combination will a. &e in the same proportion as the price ratio b. &e in the same proportion as the substitution ratio c. &e in an exact .8%.8 proportion d. <enerally be all of one input or all of the other *. +ssume input + and input & can be used in combination to produce a fixed amount of output. #f the price of input + increases relati e to that of input &/ the new least%cost combination will a. #nclude less of + and more of & b. #nclude less of & and more of + c. #nclude more of both + and & d. #nclude less of both + and & .. + production possibility cur e shows a. +ll combinations of two inputs which will produce a fixed amount of output b. +ll combinations of two outputs which can be produced from a fixed amount of input c. 3he amount of output which can be obtained from different amounts of ariable input d. 3he profit possible from producing different combinations of two outputs 1. +n increase in the slope of a production possibility cur e will a. Cause the substitution ratio to increase b. Cause the substitution ratio to decrease c. Ha e no effect on the substitution ratio d. Change the price ratio ;. 3he feed combinations in a least%cost feed ration depends on all the following except: a. ,elati e prices of the feeds a ailable

b. Substitution rates between the feeds a ailable c. Selling price of the li estoc' d. 3he nutritional re-uirements of the li estoc' =. +n iso-uant cur e shows a. +ll combinations of two outputs that can be produced from a gi en amount of input b. +ll combinations of two inputs that will produce a gi en amount of output c. 3he amount of output that can be produced from a gi en amount of input d. 3he ratio between the prices of two inputs 3rue42alse T T T F T T T F T T 1. 3he ma0ority of agricultural enterprises will exhibit a competiti e enterprise relationship. ". 3he price ratio and not the absolute price le el determines the profit% maximi)ing output combination. (. Complementary enterprises allow you to increase the production of both at the same time. *. +s the slope of an iso-uant decreases/ the substitution ratio increases. .. !oubling both input prices does not change the price ratio. 1. #f the price of one output increases/ the new profit%maximi)ing output combination will include more of the now higher priced output and less of the other. ;. O er time/ changes in technology can change the substitution ratio between two inputs. =. $rice changes cause changes in the input substitution ratio. ?. Supplementary enterprises will generally be supplementary o er a limited range and then become competiti e. 18. #so-uants representing larger amounts of output will be further from the graphDs origin.

Chapter ? Multiple Choice 1. #n the short run/ a. 3otal fixed costs are )ero when there is no production b. 3otal ariable costs are )ero when there is no production c. 3otal cost will remain constant as output is increased d. 3otal cost will decrease as output is increased ". 3he opportunity cost of one more unit of a ariable input is a. #ts mar'et alue at the time of its use b. #ts cost at time of purchase c. 3he return from using that input in its next best alternati e use d. 3he same as marginal cost (. 3he marginal cost cur e a. 5ill e entually increase as output is increased b. 5ill e entually decrease as output is increased c. #s constant regardless of output le el d. Has the same shape as a marginal re enue cur e. *. 5hich of the following could be used to compute +3C6 a. +2C b. +IC c. +3C d. +ll of the abo e .. 5hich of the following could be used to compute +3C6 a. A3IC J 32CB 4 Output b. A+2C E +ICB 4 Output c. 3C 4 #nput d. A32C E 3ICB 4 Output 1. #n the short run/ production should be stopped whene er a. 3otal re enue is less than total ariable cost b. 3otal re enue is less than total cost c. 3otal re enue is less than total fixed cost d. 3otal re enue is greater than total fixed cost ;. 3here are increasing returns to si)e whene er a larger business a. Has a larger a erage cost per unit of output b. Has a smaller a erage cost per unit of output c. Has the same a erage cost per unit of output d. #ncreasing returns to si)e cannot be described in terms of a erage cost

=. +t the output le el where MC is e-ual to +3C/ a. M, is e-ual to MC b. MC is also e-ual to +IC c. 3hey are both less than +2C d. +3C is at its minimum alue 3rue42alse T T F T T F F T F T 1. #t is possible for the opportunity cost of an input to be ery low or )ero if there is no alternati e use for it. ". 3here are both fixed and ariable costs in the short run. (. +2C is constant as output increases. *. 3he ertical distance between the 3C and 3IC cost cur es on a graph is e-ual to 32C. .. $roduction should continue in the long run as long as re enue will co er all costs. 1. 3otal fixed cost will decrease as more output is produced. ;. +3C will continually decrease as more and more output is produced. =. MC is e-ual to change in 3IC di ided by the change in output. ?. 3here is no opportunity cost on a farm operatorDs own labor/ only on hired labor. 18. + declining long run a erage cost cur e indicates economies of si)e.

Chapter 18 Multiple Choice 1. Cost of production is computed from the e-uation a. 3otal fixed cost di ided by output b. 3otal ariable cost di ided by output c. 3otal cost di ided by output d. 3otal cost di ided by output selling price ". +s output increases with no change in total cost/ brea' e en price will a. #ncrease b. !ecrease c. ,emain constant d. #nitially decrease and then begin to increase (. 3he alues in a crop enterprise budget are normally for a. One unit of output b. 188 pounds of output c. One bushel of output d. One acre *. 5hich of the following are or could be totally noncash expenses on an enterprise budget a. !epreciation b. Labor expense c. Management expense d. +ll of the abo e .. 5hich of the following terms/ if used on an enterprise budget/ would be considered the same as ariable cost6 a. Ownership cost b. Operating cost c. O erhead cost d. #ndirect cost 1. 5hich of the following would be a fixed cost on a typical crop enterprise budget6 a. Land charge b. Machinery repairs c. Labor expense d. Har esting expense ;. On a breeding li estoc' enterprise budget/ if replacement females are assumed to be raised on the farm or ranch/ a. +n expense item for their depreciation should be shown b. 3he number of young females sold should be reduced c. 3he cost of buying replacements should be included

d. #ncome from the sale of cull breeding animals can be ignored =. On an enterprise budget/ fixed costs are often called a. #ndirect costs b. Operating costs c. Sun' costs d. Ownership costs ?. #nterest is included as a ariable cost on an enterprise budget a. Only if money will be borrowed b. +s an opportunity cost on other ariable costs regardless whether borrowed or e-uity capital will be used c. &ecause of the in estment in machinery d. &ecause of the in estment in land 18. Cost of production will be the same alue as a. + erage total cost b. 3otal cost c. + erage ariable cost d. Marginal cost 3rue42alse F T T F T F T F T F 1. Only cash re enues are included on an enterprise budget. ". 3he e-uation for brea' e en yield is total cost di ided by selling price. (. #f the cost of production is greater than the selling price/ the re enue from the enterprise will be less than the total economic costs. *. #t is safe to assume that the input le els shown on published enterprise budgets are the profit%maximi)ing amounts. .. 2or a gi en total cost/ the higher the yield/ the lower the brea'%e en price. 1. 3here is only one possible enterprise budget for each enterprise. ;. >nterprise budgets are useful when selecting enterprises to include in a whole farm plan. =. Only cash expenses are included on an enterprise budget. ?. Some enterprises may ha e more than one source of re enue. 18. 3here are no opportunity costs on an enterprise budget.

Chapter 11 Multiple Choice 1. 5hich of the following may be included on a partial budget6 a. 2ixed costs b. Iariable costs c. Opportunity costs d. +ll of the abo e ". 3he alues shown on a partial budget are a. 3otal re enue and total expenses for the farm b. Only total expenses for the farm c. Only total re enue for the farm d. Only changes in re enues and expenses (. 5hich of the following are the profit increasing changes on a partial budget6 a. +dditional costs and additional re enue b. ,educed costs and reduced re enue c. ,educed costs and additional re enue d. +dditional costs and reduced re enue *. 5hich of the following are the profit decreasing changes on a partial budget6 a. +dditional costs and additional re enue b. +dditional costs and reduced re enue c. ,educed costs and additional re enue d. ,educed costs and reduced re enue .. #f a partial budget shows some fixed or ownership costs under ,educed Costs/ it means a. 3he proposed alternati e re-uires purchasing a new capital asset b. + new capital asset must be purchased next year with either alternati e c. 3he proposed alternati e would allow the sale of a capital asset that will no longer be needed d. 3here is an error on the budget as fixed costs are ne er included under ,educed Costs 1. + partial budget is designed to analy)e the effect of a proposed change on a. >conomic profit b. &usiness ris' c. Li-uidity of the business d. +ccounting profit ;. + partial budget would be the most useful type of budget for estimating a. 3he amount of borrowing re-uired for the next year b. 3he brea' e en price needed to co er all costs of cotton production c. Labor needed on the farm during the next year

d. 3he change in profit from installing an irrigation system on one field 3rue42alse F T F F T F T T F F 1. Only cash expenses are shown on a partial budget. ". + partial budget includes only those costs and re enues which will change if the proposed alternati e is adopted. (. 3he better alternati e as shown on a partial budget is sure to be the one which maximi)ed profit for the business. *. Opportunity costs are ne er included on a partial budget. .. Changing a crop rotation to plant =8 acres more barley and =8 acres less wheat would be a decision which could be analy)ed using a partial budget. 1. Change in profit is the only factor to consider when loo'ing at the results of a partial budget. ;. @ot all partial budgets will need to include some fixed only ownership costs. =. + partial budget analy)es only two management alternati es at one time. ?. Only changes in ariable or operating costs are included on a partial budget. 18. + single partial budget can analy)e up to four alternati es.

Chapter 1" Multiple Choice 1. #n whole farm planning it is assumed that when KKKKKKKKKKKK is maximi)ed/ total profit is also maximi)ed. a. $rofit per unit b. <ross margin per unit c. 3otal gross margin d. 3otal gross income ". #f an acre of alfalfa re-uires C;. of operating capital and . hours of labor/ and a farm has ;8 acres of land/ *88 hours of labor/ and C*/.88 of operating capital a ailable/ the maximum acres of alfalfa that can be grown is: a. .8 b. 18 c. ;8 d. =8 (. Using simplified programming to de elop a whole farm plan/ when no more enterprises can be added it may still be possible to increase gross margin by replacing one enterprise with another enterprise that has a higher gross margin per: a. +cre b. &ushel c. Unit of excess resource d. Unit of limiting resource *. +n ad antage of linear programming o er simplified programming is: a. Linear programming is less complex mathematically b. Linear programming can -uic'ly analy)e a large number of acti ities and resources c. Linear programming contains built%in default data d. Linear programming re-uires less data .. 2arming systems analysis ta'es into account: a. #nteractions among different enterprises b. $ossible ariations in 'ey alues such as selling prices c. !ifferent types of production technology d. Speciali)ed labor needs 1. Sensiti ity analysis loo's at the change in total profit caused by: a. + change in selling prices b. + change in yields c. + change in the price of a 'ey input d. +ny of the abo e

;. 3he purpose of li-uidity analysis is to estimate if: a. 3he supply of labor will be sufficient to carry out the plan b. 3he supply of irrigation water will be sufficient c. Cash inflows will be sufficient to meet expected cash outflows d. @et farm income will be positi e or negati e =. 5hen comparing se eral long%range whole%farm budgets with different -uantities of ma0or fixed resources such as owned land or permanent labor/ the prices used to estimate gross income should be: a. Current prices on the date the budget is made b. $rices expected when this yearDs products are sold c. + erage prices from the pre ious year d. >xpected a erage prices o er the next se eral years ?. + whole%farm budget analy)es: a. Costs/ returns/ and resource needs for a specific set of enterprises b. Costs and returns that would be affected by a specific management change c. $ro0ected costs and returns for one unit of a specific enterprise d. 3he actual costs and returns that were reali)ed during one year for all the enterprises on a farm 18. 73echnical coefficients9 for whole%farm planning refer to: a. 3he estimated gross margin for one unit of each enterprise being considered b. 3he -uantity of each resource that is a ailability c. 3he -uantities of resources needed to produce one unit of each enterprise being considered d. 3he total -uantity of each resource needed for a gi en farm plan 3rue42alse T F T F T T T F 1. 5hen de eloping a whole%farm plan the in entory of resources should include labor and management s'ills as well as physical resources. ". 2arms that carry out the same type and scale of enterprises year after year do not need to de elop a whole%farm budget. (. #n whole%farm budgeting only gross margin is multiplied by the number of units of each enterprise because fixed costs are assumed to be constant when the number of units of an enterprise change. *. $rincipal payments on noncurrent debts are needed for analy)ing profitability/ but not li-uidity. .. Sensiti ity analysis in whole%farm budgeting loo's at how net income and cash flow would be affected by changes in 'ey prices or production rates. 1. Crop and li estoc' in entories held o er from last year can be ignored when doing a long%run budget. ;. Changing from one whole%farm plan to another may re-uire se eral transitional years in which net income and cash flow are different than in a typical year. =. &oth simplified and linear programming assume that the resource re-uirements per

F T

unit of an enterprise increase as more units of the enterprise are carried out. ?. he shadow price or dual alue for a resource in a linear programming solution shows how much total costs would increase if one more unit of the resource were a ailable. 18. One way that goals other than profit maximi)ation can be included in whole farm planning is by restricting the types of enterprises considered.

Chapter 1( Multiple Choice 1. 5hich of the following would not appear on a cash flow budget6 a. 2eed purchases b. #n entory change c. 2amily li ing expenses d. Cost of new tractor ". 5hich of the following would appear on an income statement but not on a cash flow budget6 a. <ain or loss on sale of capital asset b. #n entory changes c. !epreciation d. +ll of the abo e (. 5hen preparing a cash flow budget it is important to a. 3a'e into account the timing of cash inflows and outflows b. #nclude all noncash expenses c. #nclude only noncash re enues d. Omit family li ing expenses and other personal withdrawals *. + cash flow budget can be used to a. >stimate when and how much money will need to be borrowed during the year b. >stimate when and how much debt can be repaid during the year c. >stimate when excess cash may be a ailable so plans can be made to in est it d. +ll of the abo e .. + pro0ected negati e annual cash flow before any new borrowing is considered indicates a. @et farm income will be negati e b. !epreciation expense is too high c. 3otal debt will be higher at the end of the year than at the beginning d. 3here should ha e been more debt at the beginning of the year 1. + cash flow budget can be used to monitor the farm business by a. Comparing actual cash inflows and outflows to the budgeted monthly cash flows b. Comparing actual cash inflows and outflows to 18%year a erages c. Comparing the pro0ected ending cash balances to the actual balances for each month d. Comparing actual selling prices to those assumed in the cash flow budget ;. + cash flow analysis of an in estment in a new capital asset should include pro0ections for a. Se eral months b. One year on a monthly basis

c. One year for the whole year only d. Se eral years =. 3he last step in constructing a cash flow budget should be a. >stimating the amount of crop and li estoc' production for the year b. >stimating how much new current debt will be needed and can be repaid each month c. >stimating family li ing expenses d. >stimating when payments on existing debt are due 3rue42alse T F F T T F T F T T 1. + cash flow budget for a whole farm can be prepared on an annual/ -uarterly or monthly basis. ". 3he primary use of a cash flow budget is to estimate profit for the coming year. (. + cash flow budget contains exactly the same information as an income statement only it is shown by time period. *. &oth principal and interest payments on noncurrent debt are included on a cash flow budget. .. 5hen they are different/ cash expenses are entered on a cash flow budget in the time period the bill will be paid and not in the time period the item was purchased. 1. +n in entory increase is shown on a cash flow budget in the time period it occurs e en though the product will not be sold until a later period. ;. + cash flow budget can be used to analy)e the feasibility of a new capital in estment. =. @onfarm income and expenses are not included on a cash flow budget. ?. 3he beginning cash balance for one time period should be the same as the ending cash balance for the pre ious time period. 18. + cash flow budget should include the total amount of cash recei ed from the sale of a capital asset.

Chapter 1* Multiple Choice 1. 3he number of shares of stoc' recei ed by each stoc'holder when a farm corporation is formed is based on the KKKKKKKK contributed by each stoc'holder. a. +mount of e-uity b. Ialue of total liabilities c. Ialue of labor d. Ialue of total costs ". #n a 0oint operating agreement/ gross income is shared in proportion to each personDs contribution to: a. 3otal labor b. 3otal costs c. 3otal assets d. 3otal liabilities (. + parent and a child who were starting a farm together would most li'ely double the si)e of their mil'ing parlor if their ultimate goal was to end up with: a. + 7spin%off9 operation b. 3he parents retiring in a few years and renting the farm to the child c. + family farming corporation with both parent and child acti e *. >state planning is most concerned with the passing on the KKKKK of the farm to the next generation a. #ncome b. Ownership c. Management .. + 7limited9 partnership is one which: a. Some partners do not participate in management/ and ha e limited liability b. 3he maximum number of acres farmed is fixed by law c. 3he number of partners much not exceed (. d. Only one type of enterprise is carried out 1. + limited liability company combine the legal aspects of: a. + sole proprietorship and a partnership b. + partnership and corporation c. + corporation and a cooperati e d. + sole proprietorship and a corporation ;. 5hich type of farm business organi)ation does each of the following statements best describe6 a. Sole proprietorship b. $artnership

c. C AregularB corporation C C A C B A C B a. 2iles its own income tax return/ separate from the personal returns of its members. b. ,e-uires a board of directors and detailed records c. Most common farm business arrangement d. Has the most limited indi idual financial liability e. Life of the business ends on the death of one member f. >asiest to organi)e and operate g. Stoc' is owned by shareholders h. Certain members can limit their financial liability by not participating in the management of the business

=. #n a cooperati e/ shareholders ha e oting rights: a. #n proportion to the number of shares owned b. #n proportion to the amount of business done with the cooperati e c. #n proportion to the capital contributed d. 3hat is e-ual for all members 3rue42alse T F F F F T F F T T 1. 2arm partnerships are more common than farm corporations in the United States. ". + farm business that is in the consolidation stage of its life cycle will be loo'ing for opportunities to grow/ e en if it means using debt. (. Only one person can pro ide the management in a sole proprietorship. *. 5hen comparing the contributions of each party in a 0oint operating agreement/ resources such as owned machinery or land should be alued at their mar'et or sale alue rather than their annual ownership cost. .. Oral partnership agreements are not legal in most states. 1. #t is possible for a shareholder in a farm corporation to also recei e a salary from the corporation and4or rent property to it. ;. @et income from a farm partnership is taxed at a different rate than indi idual income. =. 3ransfer of farm income/ ownership/ and management are most easily accomplished by doing them all at the same time. ?. + corporation is the most con enient form of business organi)ation for di iding and transferring ownership. 18. + parent and a child who set up separate farming operations might still find it ad antageous to own certain assets 0ointly.

Chapter 1. Multiple Choice 1. Most farmers are more li'ely to accept a ris' if: a. Only a small possible loss is in ol ed b. 3hey ha e a high debt to asset ratio c. 3hey ha e high fixed cash flow obligations d. 3hey are primarily concerned with maintaining their net worth ". 5hich type of farm lease agreement results in the most price and yield ris' for the tenant6 a. Crop%share b. Li estoc' share c. 2ixed cash d. Custom farming (. 3he maxi%min strategy for choosing among ris'y alternati es assumes that the farm manager is most concerned with: a. +chie ing a high a erage return b. +chie ing the best possible result in a good year c. +chie ing the best possible result in a bad year d. Minimi)ing the chances of suffering a loss *. 5hich of the following strategies does not reduce production ris'6 a. Selling grain before har est by a forward contract b. +pplying insecticide to a crop c. Iaccinating li estoc' against disease d. Leeping a yearDs supply of extra hay stored .. On a certain farm alfalfa yields ha e been *.(/ ;."/ ..1/ (.1/ 1.;/ ;."/ .../ ..;/ *.= and ..* tons per acre in the last 18 years. +ssuming past yields are a good indicator of future yields/ what is the most li'ely yield range for the coming year6 a. * to . tons per acre b. . to 1 tons per acre c. 1 to ; tons per acre d. ; to = tons per acre 1. 5hat is the expected alue for the farmDs alfalfa yield/ if each past result is gi en e-ual weight6 a. ..8 tons per acre b. ..1 tons per acre c. 1." tons per acre d. 1.. tons per acre

;. 3he probability that the outcome of an uncertain e ent will be e-ual to or less than a certain alue is gi en by the: a. Coefficient of ariation b. Standard de iation c. >xpected alue d. Cumulati e distribution function =. KKKKKKKKKK insurance protects farm operators from the loss of a building from fire or wind. a. Life b. $roperty c. Liability d. Multiple peril crop insurance ?. 3he success of hedging as a measure to reduce price ris' depends on the fact that cash and futures contract prices for the same commodity: a. Mo e up or down independently of each other b. 3end to be about the same on a gi en day c. 3end to mo e up or down at the same time d. 3end to mo e in opposite directions 18. 5hich type of ris' control does each of the following management strategies illustrate6 a. ,educe the ariability of possible outcomes b. Set a minimum price or income le el/ for a fixed charge c. Maintain flexibility for ma'ing decisions d. #mpro e ability of the business to bear ris' A B A C D A B C 3rue42alse T T F T F 1. 5eather is an important source of production ris' for crop producers. ". > en farmers with good ris'%bearing ability may be ris' a oiders. (. $rices or yields that are highly ariable o er time will ha e a small standard de iation. *. + farmer who is neither a ris' lo er nor a ris' a oider would always choose the a ailable strategy with the most profitable income. .. Using the coefficient of ariation to measure the ris'iness of a possible strategy puts Sell grain by a commodities futures contract AhedgeB. $urchase multiple peril crop insurance. $roduce fi e different crops instead of only one. #n est in grain storage facilities. Leep C(8/888 in short%term sa ings. ,ent land with a crop share lease. $rice grain by buying a commodity option AputB Ha e the capacity to either sell feeder pigs or finish them to mar'et weight.

T F T T T

more emphasis on possible results that are worse than a erage rather than better than a erage. 1. Li estoc' raising enterprises/ such as beef cows/ a ewe floc'/ or a sow herd/ usually ha e more stable profits o er time than buying and finishing feeder li estoc'. ;. &eing self%insured by maintaining li-uid financial reser es carries no cost to the operator/ while buying insurance policies does. =. Commodity options essentially allow a producer to pay a premium to establish a minimum price for a commodity. ?. ,e enue insurance protects against both low yields and high prices. 18. &oth a decision tree and a payoff matrix can be used to illustrate the results of different combinations of management strategies and uncertain outcomes.

Chapter 11 Multiple Choice 1. 5hat is the M+C,S class life for beef animals used for breeding purposes6 a. ( years b. . years c. ; years d. 18 years ". !uring the first year of farming/ a farmer can choose which accounting method to use for tax purposes by a. Sending a certified letter to the #,S b. @otifying any certified public accounting c. Leeping the farm records according to the method chosen d. Using that method when completing the farm tax return for the year. (. 5hich of the following would not be shown on a farm tax return when using the cash accounting method6 a. #n entory changes b. !epreciation c. 2ertili)er expense paid d. #nterest expense paid *. +n ad antage of the accrual method of computing taxable farm income is a. 3he result is a better indicator of net farm income than that obtained from using the cash method. b. Lower marginal tax rates c. #n entory changes are included so taxable income will always be smaller d. #ncome taxes are postponed one year when in entory alues are increasing .. 3he income tax rates a. +re a erage tax rates b. +re marginal tax rates c. +re different for farmers and ranchers than other tax payers d. +pply only to business income/ not to salary and wages 1. 3he ad0usted tax basis on a depreciable asset is its a. Original cost b. Current mar'et alue c. &eginning basis less accumulated depreciation d. Current boo' alue based on straight line depreciation ;. 3he goal of income tax management should be a. 3o pay as little income tax as possible b. 3o minimi)e taxable income

c. 3o maximi)e short%run profit d. 3o maximi)e long%run/ after%tax profit 3rue42alse F T T F T T T F T T 1. +ll capital gain income is exempt from income taxes. ". 3he M+C,S tax depreciation method uses a )ero sal age alue for depreciable assets. (. +n ad antage of the cash method of computing taxable income is flexibility. *. 3axpayers can use only the regular M+C,S tax depreciation method. .. 5ith the cash method/ the cost of feeder li estoc' is a tax deductible expense only in the year they are sold. 1. 3he cash method has the potential for wide changes in income if the crop production from two years is sold in the same year. ;. &ecause of the half%year rule/ a .%year class li e asset will still ha e some tax depreciation in the sixth year it is owned. =. Section 1;? expensing must be ta'en on e ery eligible asset. ?. Complete and accurate records are re-uired for good tax management. 18. > en though they will ha e to be paid in a later year/ postponing the payment of income taxes is usually good tax management.

Chapter 1; Multiple Choice 1. 3he process of finding future alue of a present sum is called a. Compounding b. !iscounting c. +morti)ing d. &udgeting ". 3he process of finding the present alue of a future sum is called a. Compounding b. !iscounting c. +morti)ing d. &udgeting (. + series of periodic payments is called aAnB a. &udget b. $resent alue c. 2uture alue d. +nnuity *. Using a higher discount rate will cause the present alue of a future amount to a. #ncrease b. !ecrease c. ,emain constant d. #ncrease for short time periods but decrease for time periods of o er 18 years .. + net present alue of )ero means the in estment has an internal rate of return a. <reater than the discount rate b. Less than the discount rate c. >xactly e-ual to the discount rate d. >-ual to )ero 1. 3he internal rate of return is the interest rate which would a. Ma'e net present alue 0ust e-ual to )ero b. Ma'e net present alue greater than )ero c. Ma'e sure the in estment would be financially feasible d. <enerate a positi e net cash flow from the in estment ;. 3he future alue of C18/888 placed in a sa ings account will depend on a. 3he interest rate b. 3he time it is left in the account c. &oth the interest rate and time in the account d. 3he discount rate

=. + financially feasible analysis loo's at the a. @et present alue of the in estment b. #nternal rate of return for the in estment c. $aybac' period for the in estment d. @et cash flows resulting from the in estment and its financing ?. 5hen computing the after%tax net present alue of an in estment a. Cash flows need to be ad0usted for increased or decreased income taxes b. 3he discount rate should be reduced by the marginal tax rate c. @either of these ad0ustments need to be made d. &oth cash flows and the discount rate need to be ad0usted 18. 5hen finding the net present alue of an in estment considering inflation a. +ll cash flows should be increased by their expected rate of inflation b. 3he discount rate should be a nominal rate c. &oth of the abo e d. @either of the abo e 3rue42alse F T F F T F T T T T 1. +ny in estment which has a positi e net present alue will also be financially feasible. ". !epreciation is not included when computing the net cash flows from an in estment. (. + C1/888 of income . years from now is worth the same as C1888 of income today. *. 3he best way to analy)e an in estment is to compute the paybac' period. .. #ncome taxes can affect the profitability of an in estment. 1. 3he simple rate of return and the internal rate of return will be the same for any in estment. ;. 3he higher the interest rate the smaller the annual payment needed to accumulate a gi en amount 18 years from now. =. + person re-uiring a 1 percent return could pay more for an in estment than someone re-uiring an = percent return. ?. #f a positi e rate of inflation is expected/ the real discount rate is smaller than the nominal discount rate. 18. Some cash flows may be taxed at different rates than others.

Chapter 1= Multiple Choice 1. 3he current ratio is a measure of a farm firmDs: a. ,eturn on e-uity b. +bility to pay short%term credit obligations c. ,eturn on in estment in current assets d. Le el of total debt to total assets at the present time ". 3wo similar farms could ha e the same return to management but different net farm income due to: a. !ifferences in prices recei ed for products sold b. !ifferences in prices paid for inputs purchased c. !ifferences in amount of unpaid labor and e-uity capital used d. !ifferences in physical efficiency (. #n general terms/ efficiency refers to: a. 3he olume of resources utili)ed in the farm business b. 3he ratio of total liabilities to total assets in the business c. 3he net farm income generated by the farm business d. 3he olume of production generated per unit of resource utili)ed in the farm business *. + trend analysis for a farm business could be performed using what 'ind of data for comparison6 a. Historical data from the same farm for the past fi e years b. !ata from comparable farms in the same region for the same year c. >xpected results from a whole farm budget completed at the beginning of the year d. Historical data from similar farms in the same region for the past fi e years .. 2or a farm in which alfalfa hay is raised and fed to dairy cattle/ to analy)e alfalfa as a separate enterprise/ the alue of the hay fed should be recorded as: a. +n expense to alfalfa and an income to dairy b. +n expense to dairy and an income to alfalfa c. +n asset to alfalfa and a liability to dairy d. +n asset to dairy and a liability to alfalfa 1. 3he degree to which a farmDs assets ade-uately secure its debts is referred to as: a. Li-uidity b. Sol ency c. >fficiency d. $rofitability ;. +n ad antage of using the alue of wor'ing capital instead of a cash flow budget to analy)e a farmDs li-uidity:

a. #t is simpler to calculate b. #t ta'es into account the timing of the cash flows c. #t ta'es into account re enue to be recei ed from the sale of products not yet in existence d. #t ta'es into account future operating expenses as well as debt repayment =. 5hen the alue of li estoc' production per C188 feed fed is greater than 188 it means that: a. 3he li estoc' enterprise had a positi e profit b. 3he li estoc' enterprise had a negati e profit c. 2eed costs were less than gross re enue ad0usted for in entory changes/ home consumption and li estoc' purchases d. C188 per hundredweight was the brea'e en sale price ?. 3he most accurate method of allocating machinery to fixed costs among crop enterprises is in proportion to: a. 3he number of acres planted to each crop b. 3he gross income generated by each crop c. 3he bushels produced by each crop d. 3he actual hours which the machinery is used on each crop 18. 5hich of the following ratios does not analy)e the sol ency of the farm business6 a. !ebt4asset ratio b. 3urno er ratio c. !ebt4e-uity ratio d. >-uity4asset ratio 3rue42alse T F T F F T T F T 1. 3he debt4asset ratio and the debt4e-uity ratio both measure the o erall sol ency of the farm business. ". Cash grain farms can usually operate safely with a lower current ratio than dairy farms. (. #ncreasing li estoc' production by building up in entories of raised breeding stoc' and feed can cause temporary li-uidity problems. *. Most of the information needed for analy)ing profitability comes from the balance sheet. .. 3he return on assets A,O+B calculation is a good measure of the marginal return that can be expected from in esting more capital in the business. 1. #n general terms/ 7efficiency9 determines whether farms and ranches with the most resources also generate the most production. ;. $hysical efficiency measures do not ta'e into account the prices paid to ac-uire resources. =. 3he alue placed on products transferred from one enterprise to another within a farm business can affect the net farm income for the total farm. ?. #f a farm has )ero liabilities/ the ,O+ and ,O> will be the same.

18. >stimating the amount of feed fed by subtracting the total accounted for by all other 7uses9 from the total of all the 7sources9 is more accurate than recording actual -uantities as feed is used.

Chapter 1? Multiple Choice 1. 3he 2arm Ser ice +gency AUS!+B ma'e loans to farmers: a. 2or purchase of farm land/ but not operating expenses b. 5ho canDt -ualify for credit from commercial sources c. +t higher interest rates than commercial lenders d. Only if the money is used for house construction ". 5hich of the following sources of agricultural credit is not a go ernment agency6 a. Commodity Credit Corporation ACCCB b. 2arm Ser ice +gency A2S+B c. Small &usiness +dministration AS&+B d. 2arm Credit System A2CSB (. +n example of 7debt restructuring9 that would impro e a farmerDs cash flow in the short run is: a. Lengthening the repayment period of a large loan from ( years to 18 years b. Ma'ing payments on amorti)ed loans with funds borrowed on a line of operating credit c. Consolidating se eral small loans into one larger one d. Shortening the repayment period of a loan from 18 years to ( years *. 7Outside e-uity9 to increase the total resources of a farming operation can be obtained by: a. Long%term borrowing b. ,ein esting net farm income c. Securing funds from non%operator in estors or limited partners d. #nflation in asset alues .. 3he degree to which a farmDs liabilities are bac'ed up by assets is 'nown as: a. Li-uidity b. Sol ency c. >fficiency d. $rofitability 1. 3he largest source of nonreal estate farm credit is a. Commercial ban's b. 2arm Credit System c. Merchants and dealers d. #nsurance companies ;. +n amorti)ed loan repayment plan with a 7balloon9 payment: a. Has all the principle due in one payment b. Has each total payment larger than the pre ious one

c. +d0usts the interest rate after each payment d. Has more principle due in the final payment in the others =. 3he 2arm Credit System obtains loan funds from: a. Selling bonds on the national money mar'ets b. CustomersD deposits c. <uaranteeing commercial ban' loans d. 3he federal go ernment ?. + farming operation that is earning an a erage return on assets of * percent could ser ice a maximum debt%to%asset ratio of KKKKKKKKK if its a erage interest rate on borrowed money is 18 percent. a. 1 percent b. ". percent c. *8 percent d. ".8 percent 18. 5hen a borrow wants to establish credit with a new lender/ the possibility of success will be impro ed if: a. >xisting loans and accounts payable are not re ealed b. Se eral years of accurate financial statements are pro ided/ which show financial progress o er time c. 3he borrower will guarantee the loan alone rather than with a co%signer d. 3he loan re-uest is for a land purchase rather than for self%li-uidating assets such as feeder li estoc' 3rue42alse T F T F T F T F F 1. 7Capital9 includes machinery and li estoc' as well as cash. ". 2arming and ranching typically use less capital per wor'er than the a erage United States industry. (. 3o maximi)e profits/ additional capital should be used until the marginal alue product 0ust e-uals the interest rate. *. + borrower would pay more total interest on a 18%year loan amorti)ed under an e-ual principal payment plan than on the same loan amorti)ed under an e-ual total payment plan. .. + financial contingency plan is needed in order to meet cash commitments when unexpected cash flow shortfalls occur. 1. 2arm businesses that are highly le eraged tend to ha e more stable net incomes from year to year than those that are not. ;. Changes in asset alues due to inflation affect the sol ency of a business more than its li-uidity. =. &orrowing operating funds under a 7line of credit9 agreement re-uires more communication between borrower and lender than borrowing the same amount in se eral separate loans. ?. $urchasing capital assets with short%term loans leads to an impro ed debt structure

for the business. 18. Sometimes a farm business may ha e to sell producti e assets to meet short%term financial commitments e en though profits may be reduced in the long run.

Chapter "8 Multiple Choice 1. 5hich type of lease agreement results in the most price and yield ris' for the tenant6 a. 2ixed cash b. 2lexible cash c. Crop share d. Custom farming ". 5hen using comparati e sales to estimate the alue of a tract of farmland/ it is important to remember that the sale price of the comparati e tract may ha e been higher than normal because: a. #t was an unusually large tract b. #t was sold from one close relati e to another c. #t was sold by a seller financed installment sales contract with a low interest rate d. #t was located on a poorly maintained road (. Crop share leases are based on the principle that gross income should be shared in the proportion as: a. 3otal cash costs b. 3otal ariable costs c. 3otal fixed costs d. 3otal economic costs *. 5hen long%term interest rates are 18 percent and the rate of inflation is expected to be * percent/ a farm with an estimated net return to land in estment of C?8 per acre would ha e a alue of CKKKK per acre using the income capitali)ation approach to land aluation. a. C1*( b. C?88 c. C1/.88 d. C"/".8 .. Under a flexible cash lease in which the rent paid is set e-ual to (8 percent of the actual gross income from the crop/ the owner and tenant share what type of ris'6 a. $rice b. Mield c. &oth price and yield d. @either 1. 2armland alues in the United States generally declined during the period: a. 1?.8 to 1?18 b. 1?;8 to 1?=8 c. 1?=8 to 1?=;

d. 1?=; to 1??; ;. One ad antage that owning farmland has o er leasing is: a. Labor and machinery are used more efficiently b. Owner e-uity could increase if land alues go up c. 3he number of acres farmed is more flexible d. Less capital is tied up in long%term in estments =. 3he purpose of an en ironmental audit is to determine: a. 3he alue of a piece of farmland/ based on the prices for which other farms ha e sold for recently b. #f lime or other fertili)er needs to be applied c. #f there are en ironmental ha)ards on a farm that need to be cleaned up or corrected d. #f the property taxes on a farm ha e been paid ?. Landowners who wish to ma'e all the decisions about production and mar'eting/ but not contribute their own labor/ would probably prefer a: a. Custom farming agreement b. Crop share lease c. 2ixed bushel lease d. Cash rent lease 18. #ndicate whether the following would tend to increase AEB or decrease A%B farmland alues/ all else e-ual. a. #ncrease in crop prices (+) b. #ncrease in production input prices ( -) c. #ncrease in long%term interest rates ( -) d. #ncrease in the rate of inflation (+) 3rue42alse T T F F T F F 1. Owning farmland rather than renting it generally gi es the operator more management freedom. ". 3he 7mar'et data9 approach to aluing farmland relies on information about comparable sales of similar farms that ha e sold recently. (. 5hen a piece of farmland is sold/ water and mineral rights are automatically transferred with it. *. + crop share tenant who recei es two%thirds of the production and pays for all the fertili)er would tend to apply more fertili)er than a profit maximi)ing owner% operator. .. #n a li estoc' share lease both tenant and owner typically own part of the li estoc'. 1. Short%term lease agreements encourage operators to implement more soil and water conser ation practices than long%term agreements do. ;. >nterprise budgets are a good planning tool to e aluate the interactions among different products in a farming system.

T T F

=. + cash rent lease re-uires the tenant to pro ide more operating capital than a crop share lease. ?. + ariable or flexible cash rent lease allows the landowner to share in price and4or yield ris' without paying any of the cost of seed and fertili)er. 18. 3he fact that the supply of farmland in the United States is essentially fixed ma'es land prices and rental rates less responsi e to changes in crop prices and production technology than prices with ariable inputs such as pesticides.

Chapter "1 Multiple Choice 1. 5hich type of bonus payment plan would pro ide a hired manager of a beef cattle feedlot with the most incenti e to correctly balance rations6 a. C. paid per finished animal sold b. C.88 paid in !ecember for each year wor'ed c. 8.. percent of gross sales d. C188 for each 8.1 pounds of feed used per pound of grain/ below a standard alue ". 3he biggest problem in securing sufficient labor throughout the year on a cash grain farm is: a. Labor needs are highly ariable from month to month b. Labor supply is highly ariable from month to month c. 5or'ing conditions ha e become worse in recent decades d. 3here are no slac' wor' periods (. + good incenti e plan for farm employees should: a. Shift some price ris' to the employee b. &e based on factors o er which the employee has control c. &e paid only once a year d. +ccount for o er half of the employeeDs total compensation *. 5or'ersD compensation laws re-uire employers to: a. $ay wor'ers at least a minimum wage rate b. 5ithhold income tax from wor'ersD wages after a certain le el of wages are paid c. Carry insurance to protect wor'ers who suffer 0ob%related in0uries or illnesses d. Contribute to a fund that is used to pay benefits to unemployed wor'ers .. + characteristic of labor that ma'es it different from other agricultural resources is: a. #ts marginal cost affects how much can be used profitably b. #t cannot be stored or sa ed for later use c. Other resources cannot be substituted for it d. #t has no opportunity cost 1. <enerally the largest part of a farm employeeDs total compensation comes from: a. 5ages or salary b. 2ringe benefits c. + bonus or incenti e payment d. Contributions to an employee retirement plan ;. One measure of labor efficiency on a farm is: a. 3otal labor cost for the year b. + erage hourly wage paid c. Ialue of farm production per person%year

d. 3otal number of person%years of labor used =. 3he amount of human labor used in U.S. agriculture has decreased during the last .8 years because: a. More capital intensi e technology has changed the marginal rate of substitution of capital for labor b. ,eturns to farm labor ha e declined c. 3otal crop and li estoc' production has decreased d. 3as's performed on farms and ranches today re-uire less s'ill today than in pre ious decades ?. +n organi)ational chart of a farm business helps illustrate: a. 5here arious fields or building sites are located b. 5hat farm groups or organi)ations the manager belongs to c. 5hether the business is a sole proprietorship/ partnership/ or corporation d. 5hich personnel exercise authority o er other personnel 18. > aluation meetings with farm or ranch employees should be held: a. 5hene er a problem arises b. 5hen an employee resigns c. On a regularly scheduled basis d. 5ith all employees present together 3rue42alse F T F F T T T F T F 1. 3he total number of wor'ers employed in agriculture in the United States has increased since 1?.8. ". 5hen labor is fixed in supply but plentiful that is/ under utili)ed/ more of it should be used until its marginal alue product reaches )ero. (. Classified ads for farm employees should be short in order to hold costs down. *. 2or crop farms/ labor efficiency generally decreases as more acres are farmed. .. 5hen planning a wor' schedule/ 0obs that must be done at a specific time should be scheduled first. 1. 3he cost of housing pro ided to a farm employee can be a tax deductible expense for the employer. ;. >mployees should first be gi en a warning before being discharged for poor wor' performance. =. +ll agricultural employees must be paid at least the minimum legal wage. ?. 3he #mmigration ,eform and Control +ct re-uires employers to certify that wor'ers are eligible for employment in the United States. 18. #n most states it is legal to as' prospecti e employees -uestions about their race/ religion and age.

Chapter "" Multiple Choice 1. One ad antage of custom hiring machinery operations o er owning your own machine is: a. #t is more con enient b. #t re-uires less in estment capital c. !epreciation deductions help reduce taxes d. Mou ha e more control o er the -uality of wor' performed ". 3imeliness costs result from: a. Late planting or har esting of crops b. Owning machinery for a longer than a erage number of years c. Hiring hourly labor to operate machinery d. 3rying to repay machinery loans o er a ery short term (. 2arm machinery capital leases allow the farmer to: a. !educt depreciation expense for the machine for income tax purposes b. $urchase the machine at the end of the lease for below mar'et price c. ,educe repair and maintenance costs/ compared to owning the same machine d. Ha e less capital tied up in intermediate assets *. 5hat is the a erage annual interest cost for a new feed grinder%mixer that costs C1./888 and has an expected sal age alue of C(/888 after = years6 3he interest rate is 18 percent. a. C1.8 b. C188 c. C?88 d. C1/.88 .. #f the capital reco er factor for an = year li e and a 18 percent interest rate is .1=;*/ the capital reco ery charge for the machine in the pre ious -uestion would be: a. C".. per year b. C"/.*? per year c. C"/=11 per year d. C(/(;( per year 1. + grain drill has annual ownership costs of C(/188 and operating costs of C(..8 per acre. 3he same operation can be custom hired for C=.88 per acre. #f the annual use is KKKKKK/ it would be cheaper to own the machine. a. More than (1( acres b. Less than (1( acres c. More than =88 acres d. Less than =88 acres ;. 3he main a erage of purchase used machinery instead of new machinery is:

a. b. c. d.

Lower initial in estment #ncreased reliability + longer expected useful life Lower repair costs

=. 3he effecti e field capacity of a 11..%foot wide chisel plow that is operated at a speed of ..8 miles per hour with =. percent field efficiency is: a. =.. acres per hour b. 18.8 acres per hour c. 11.= acres per hour d. ;8.1 acres per hour ?. 2ield efficiency would probably be highest for which operation: a. Combining b. $lanting c. Spraying d. $lowing 18. 3he most common method of ac-uiring the use of farm machinery in the United States is: a. Custom hiring b. Owning c. ,enting d. Leasing 3rue42alse T F F F T T F T F T 1. Machinery ownership costs are often called fixed costs because they do not change when the annual use of the machine changes. ". Calculating a capital reco ery charge for a machinery in estment replaces estimating depreciation and insurance costs. (. Only actual field time should be considered when labor costs for machinery are calculated. *. Smaller machines typically ha e higher field efficiencies than larger machines of the same type. .. #f timeliness costs are included/ total machinery cost per acre may increase as the number of acres increases. 1. Short%term rental of farm machinery is li'ely to ha e a lower cost than owning machines that ha e a low le el of annual use. ;. 3o be considered a lease for income tax purposes/ a machinery lease must re-uire the operator to purchase the machine when the lease expires. =. Custom hiring certain machinery operations helps reduce labor needs for a farming operation. ?. 3he most important factor in deciding when to replace machinery should be the amount of income tax that can be sa ed in the year of purchase. 18. 3otal annual costs for a farm machine that is purchased new tend to decrease rapidly the first few years/ then decrease more slowly/ then e entually increase.