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WorksheetsFarm Business Management CDE
Total questions: 100
Worksheet time: 50mins
Which financial statement shows the financial position of a business at a specific point in time?
Income Statement
Balance Sheet
Statement of Cash Flows
Enterprise Budget
On a Balance Sheet, Total Assets must always equal:
Total Liabilities
Net Worth
Total Liabilities + Net Worth
Current Assets - Current Liabilities
Which of the following is considered a Current Asset?
Tractor
Breeding Livestock
100 Acres of Land
Stored Grain to be sold this year
Which of the following is a Non-Current (or Long-Term) Liability?
A feed bill due in 30 days
A mortgage on farmland
An operating loan due in 6 months
Accrued interest
Another name for Net Worth or Owner's Equity is:
Net Farm Income
Gross Revenue
Total Assets
Total Assets - Total Liabilities
The primary purpose of an Income Statement is to:
Show the current value of all assets.
List all debts owed by the business.
Summarize revenues and expenses over a period of time.
Project cash needs for the next year.
The accounting method that records revenue when it is earned and expenses when they are incurred (regardless of when cash changes hands) is called:
Cash Accounting
Accrual Accounting
Double-Entry Accounting
Tax Accounting
The systematic allocation of the cost of a capital asset (like machinery) over its useful life is known as:
Depreciation
Amortization
Appreciation
An operating expense
Which statement tracks the actual movement of cash in and out of the business from operating, investing, and financing activities?
Balance Sheet
Income Statement
Statement of Cash Flows
Enterprise Budget
The "Current Ratio" (Current Assets / Current Liabilities) is a measure of:
Solvency
Liquidity
Profitability
Efficiency
"Solvency" refers to the ability of a business to:
Meet its short-term cash obligations.
Generate a profit.
Pay all its debts if it were to sell all its assets.
Efficiently use its assets to generate revenue.
On an accrual-based income statement, an increase in the value of feed inventory from the beginning to the end of the year would be:
Ignored
Subtracted as an expense
Added as revenue (or subtracted from feed expense)
Treated as a liability
Net Farm Income From Operations (NFIFO) is calculated before or after interest expense?
Before interest expense
After interest expense
It does not include interest
Only includes interest on operating loans
The "Debt-to-Asset Ratio" (Total Liabilities / Total Assets) is a measure of:
Liquidity
Profitability
Solvency
Cash Flow
A farm's Balance Sheet shows $500,000 in Current Assets, $1,500,000 in Non-Current Assets, $300,000 in Current Liabilities, and $700,000 in Non-Current Liabilities. What is the Net Worth?
$2,000,000
$1,000,000
$1,200,000
$800,000
Which of the following is a non-cash expense that would appear on an Income Statement?
Fuel
Rent
Wages
Depreciation
The Statement of Owner Equity links which two financial statements?
Balance Sheet and Statement of Cash Flows
Income Statement and Statement of Cash Flows
Balance Sheet (beginning and ending) and Income Statement
Enterprise Budget and Partial Budget
A "pro forma" financial statement is:
A historical record of past performance.
A projected or "what-if" statement.
Working Capital is calculated as:
Total Assets - Total Liabilities
Total Revenue - Total Expenses
Current Assets - Current Liabilities
Total Assets / Total Liabilities
A negative Net Farm Income for the year will cause what change on the end-of-year Balance Sheet, assuming no other changes?
Total Assets will decrease.
Total Liabilities will decrease.
Net Worth will decrease.
Net Worth will increase.
A budget that details the expected costs and returns for a single production activity (e.g., one acre of cotton or one sow) is called a(n):
Whole-Farm Budget
Cash Flow Budget
Enterprise Budget
Partial Budget
In an enterprise budget, costs like seed, fertilizer, and feed, which change with the level of production, are called:
Fixed Costs
Variable Costs
Depreciation
Opportunity Costs
Property taxes and insurance on a machinery shed are examples of:
Variable Costs
Fixed Costs
Non-cash Expenses
Both B and C
What type of budget is best used to analyze the profitability of a potential change in the farm business, such as buying a new harvester vs. custom hiring?
Partial Budget
Enterprise Budget
Cash Flow Budget
Balance Sheet
The four main components of a partial budget are:
Added Revenue, Reduced Cost, Added Cost, Reduced Revenue
Assets, Liabilities, Revenue, Expenses
Inflows, Outflows, Beginning Balance, Ending Balance
Variable Costs, Fixed Costs, Gross Margin, Net Income
The primary purpose of a Cash Flow Budget is to:
Determine the annual profit of the farm.
Project the timing of cash inflows and outflows for a future period.
Calculate the farm's Net Worth.
Analyze a single enterprise.
In an enterprise budget, 'Gross Margin' is calculated as:
Total Revenue - Total Fixed Costs
Total Revenue - Total Variable Costs
Total Assets - Total Liabilities
Total Revenue - Total Expenses
Which of the following would NOT be included in a Cash Flow Budget?
Sale of grain
Family living expenses
A principal payment on a loan
Depreciation on a tractor
A "Whole-Farm Budget" is designed to:
Estimate the total profit for the entire farm business.
Analyze one specific change.
Show the farm's liquidity position.
Track only cash expenses.
If a partial budget analysis shows a "Net Change in Profit" of -$500, what does this imply?
The proposed change will increase profit by $500.
The proposed change will decrease profit by $500.
The farm's cash flow will decrease by $500.
The farm's total assets will decrease by $500.
In an enterprise budget, the "break-even yield" is calculated as:
Total Cost / Selling Price
Total Cost / Expected Yield
Total Revenue / Total Cost
Selling Price / Total Cost
In an enterprise budget, the "break-even price" is calculated as:
Total Cost / Expected Yield
Total Cost / Selling Price
Total Revenue / Total Cost
Expected Yield / Total Cost
A cash flow budget is most useful for planning:
Borrowing and debt repayment.
The farm's long-term solvency.
The correct depreciation schedule.
The farm's tax liability.
A farmer is considering replacing 100 acres of soybeans with 100 acres of corn. What is the "Reduced Revenue" in a partial budget for this change?
The expected revenue from 100 acres of corn.
The expected revenue from 100 acres of soybeans.
The cost of growing 100 acres of corn.
The cost of growing 100 acres of soybeans.
A farmer is considering buying a combine instead of custom hiring. What is the "Added Cost" in a partial budget for this change?
The annual custom hire bill.
The revenue from the crop.
The ownership and operating costs of the new combine.
The value of the grain harvested.
A "sensitivity analysis" performed on a budget is:
Checking the math for errors.
Asking a neighbor if the numbers look right.
Evaluating the effect of changing key assumptions (like price or yield).
Comparing the budget to historical performance.
A plan for the sources and uses of capital for the business (e.g., land, machinery) is a:
Capital Budget
Operating Budget
Labor Budget
Cash Flow Budget
Which of the following is a 'fixed' cost (also known as an 'ownership' cost)?
Fuel
Seed
Hired Labor
Depreciation
A cash flow budget typically includes all of the following except:
Beginning cash balance
Cash from crop sales
Cash paid for fertilizer
Change in inventory value
An enterprise budget showing a positive 'Return Over Variable Costs' (Gross Margin) but a negative 'Return Over Total Costs' means:
The enterprise should be shut down immediately.
The enterprise is profitable in the long run.
The enterprise is covering all its variable costs and contributing some money to fixed costs.
The enterprise is not covering its variable costs.
The economic principle that a dollar received today is worth more than a dollar received in the future is known as:
The Law of Diminishing Returns
The Time Value of Money
Opportunity Cost
The Law of Supply
The process of finding the future value of a present sum of money is called:
Discounting
Compounding
Amortizing
Budgeting
The process of finding the present value of a future sum of money is called:
Discounting
Compounding
Inflating
Appreciating
Which capital budgeting method calculates the number of years required for an investment's net returns to cover its initial cost?
Net Present Value (NPV)
Internal Rate of Return (IRR)
Payback Period
Simple Rate of Return
The 'Simple Rate of Return' is calculated as:
(Average Annual Net Return / Initial Investment) x 100
Initial Investment / Average Annual Net Return
Average Annual Net Return / Total Investment
Total Investment / Average Annual Net Return
Which capital budgeting method subtracts the initial cost of an investment from the sum of the present values of its future net returns?
Net Present Value (NPV)
Internal Rate of Return (IRR)
Payback Period
Benefit-Cost Ratio
If an investment has a Net Present Value (NPV) of $5,000, the project should be:
Rejected, because the NPV is not zero.
Accepted, because the NPV is positive.
Rejected, because the NPV is positive.
Further analyzed, as this value is inconclusive.
The "Internal Rate of Return" (IRR) is defined as:
The average interest rate paid on farm loans.
The rate of return on the farm's total assets.
The discount rate that makes the NPV of an investment equal to zero.
The initial cost divided by the annual return.
If the Internal Rate of Return (IRR) on an investment is 12% and the farmer's required rate of return (discount rate) is 8%, the farmer should:
Accept the investment.
Reject the investment.
Be indifferent about the investment.
Wait for the IRR to equal the discount rate.
A major weakness of the "Payback Period" method is that it:
Is too complicated to calculate.
Ignores the time value of money.
Ignores cash flows that occur after the payback period.
Both B and C.
An "annuity" is:
A lump sum payment.
A series of equal, periodic payments.
The interest rate on a loan.
The total value of an investment.
As the discount rate (interest rate) increases, the Present Value (PV) of a future payment:
Increases
Decreases
Stays the same
Becomes zero
An analysis of an investment in a new grain bin is an example of:
Capital Budgeting
An Enterprise Budget
A Whole-Farm Plan
Risk Management
The "Initial Cost" of a new machine in an investment analysis should include:
Only the purchase price.
The purchase price plus any additional setup or delivery costs.
The purchase price minus the salvage value.
The value of the first year's crop.
The 'salvage value' of an investment is:
The cost to repair it.
The value of the asset at the end of its useful life.
The initial purchase price.
The amount of depreciation.
A widespread drought that reduces crop yields is an example of what type of risk?
Production Risk
Market (Price) Risk
Financial Risk
Legal Risk
A sudden drop in cattle prices due to a change in consumer preferences is an example of what type of risk?
Production Risk
Market (Price) Risk
Financial Risk
Human Risk
The risk of rising interest rates on a variable-rate loan is an example of:
Production Risk
Market (Price) Risk
Financial Risk
Legal Risk
Purchasing multi-peril crop insurance is a strategy to manage:
Production Risk
Market (Price) Risk
Financial Risk
Legal Risk
Using the futures market to lock in a selling price for a commodity you will sell in the future is called:
Hedging
Speculating
Forward Contracting
Diversifying
A legal agreement with a local elevator to deliver 10,000 bushels of corn at a specified price on a future date is a:
Futures Contract
Put Option
Forward Contract
Basis Contract
'Diversification,' such as growing both corn and soybeans and raising cattle, is a strategy to manage:
Production risk only
Price risk only
Both production and price risk
Legal risk
Which type of risk relates to the farm's ability to maintain sufficient cash flow to meet its financial obligations?
Production Risk
Financial Risk
Market (Price) Risk
Legal Risk
A contract that gives the holder the right, but not the obligation, to sell a futures contract at a specific price is a(n):
Put Option
Call Option
Forward Contract
Hedged-to-Arrive Contract
A contract that gives the holder the right, but not the obligation, to buy a futures contract at a specific price is a(n):
Put Option
Call Option
Forward Contract
Basis Contract
The "premium" is the cost of:
A futures contract
An options contract (Put or Call)
A forward contract
A bank loan
Maintaining a good relationship with a lender to ensure access to credit is a strategy for managing:
Production Risk
Price Risk
Financial Risk
Human Risk
The risk of a key employee quitting or the owner becoming disabled is:
Legal Risk
Financial Risk
Human Risk
Production Risk
Creating an LLC (Limited Liability Company) for the farm business is a strategy to manage:
Production Risk
Price Risk
Legal and Financial Risk
Human Risk
Spreading sales of a commodity (e.g., selling 25% of the crop at four different times) is a tool to manage:
Production Risk
Price Risk
Financial Risk
Legal Risk
The value of the next best alternative that is given up when a decision is made is called:
Marginal Cost
Fixed Cost
Opportunity Cost
Sunk Cost
The economic principle that states, "all else being equal, as the price of a good increases, the quantity demanded by consumers will decrease" is:
The Law of Supply
The Law of Demand
The Law of Diminishing Returns
The Law of Comparative Advantage
The economic principle that states, "all else being equal, as the price of a good increases, the quantity supplied by producers will increase" is:
The Law of Supply
The Law of Demand
The Law of Diminishing Returns
The Law of Comparative Advantage
The point where the quantity supplied and the quantity demanded for a good are equal is called:
The inelastic point
The elastic point
The equilibrium price
The break-even price
The "Law of Diminishing Marginal Returns" states that as more units of a variable input (like fertilizer) are added to fixed inputs (like land), eventually:
The total output will decrease.
The additional output (marginal product) from each new unit of input will decrease.
The price of the output will decrease.
The cost of the input will increase.
If a 10% increase in the price of milk leads to only a 5% decrease in the quantity demanded, the demand for milk is:
Elastic
Inelastic
Unitary Elastic
Perfectly Elastic
If a 5% increase in the price of steak leads to a 10% decrease in the quantity demanded, the demand for steak is:
Elastic
Inelastic
Unitary Elastic
Perfectly Inelastic
Most raw agricultural commodities, like wheat and corn, typically have:
Elastic demand
Inelastic demand
Elastic supply
No demand
A "substitute good" is one that:
Is used in conjunction with another good (e.g., peanut butter and jelly).
Can be used in place of another good (e.g., pork and chicken).
Is a raw input for another good.
Is an inferior good.
A "complementary good" is one that:
Is used in conjunction with another good (e.g., tractors and fuel).
Can be used in place of another good.
Is a luxury item.
Is an inferior good.
"Marginal Cost" is defined as:
The total cost divided by the total output.
The change in total cost from producing one more unit of output.
The total fixed cost.
The total variable cost.
A producer should continue to add units of a variable input (like fertilizer) as long as:
The marginal revenue (MVP) is greater than or equal to the marginal cost (MIC).
The total revenue is positive.
The price of the input is decreasing.
The total output is increasing.
"Economies of scale" refers to:
The decrease in per-unit cost as the size of the operation increases.
The increase in per-unit cost as the size of the operation increases.
The point of maximum profit.
The point of diminishing returns.
A cost that has already been incurred and cannot be recovered is a:
Fixed Cost
Variable Cost
Sunk Cost
Opportunity Cost
The ability of a farm to produce a good at a lower opportunity cost than another farm is called:
Absolute Advantage
Comparative Advantage
Competitive Advantage
Diminishing Returns
The process of paying off a loan in a series of regular, equal payments (including both principal and interest) is called:
Depreciation
Amortization
Compounding
Hedging
The difference between the local cash price for a commodity and the price of a specific futures contract is the:
Premium
Basis
Strike Price
Margin
A business organization in which two or more individuals own and manage a business and are jointly liable for its debts is a:
Sole Proprietorship
Corporation
Partnership
Stocks
A "bear" market is one characterized by:
Rising prices
Falling prices
Volatile prices
Stable prices
A "bull" market is one characterized by:
Rising prices
Falling prices
Volatile prices
Stable prices
The money deposited with a broker to ensure performance on a futures contract is called:
A premium
A commission
A margin
A basis
The owner's claim on the assets of the business (Total Assets - Total Liabilities) is:
Equity (or Net Worth)
Revenue
Net Income
Working Capital
A "patronage refund" is a payment from a(n) _______ to its members.
Bank
Cooperative
Insurance Company
LLC
The legal document that transfers title of real estate from a seller to a buyer is a:
Lease
Mortgage
Deed
Note
An asset that is pledged to a lender to secure a loan is called:
Collateral
Equity
A liability
Working Capital
A market with many buyers and sellers, a homogeneous product, and free entry and exit is:
A monopoly
An oligopoly
A monopsony
Perfect competition
A market with only one buyer is a:
Monopoly
Monopsony
Oligopoly
Perfect competition
Renting farmland for a fixed amount (e.g., $200 per acre) is what type of lease?
Cash Lease
Crop-Share Lease
Livestock-Share Lease
Flexible Lease
A person who acts as an agent for a buyer or seller in a futures market transaction is a:
Speculator
Hedger
Broker
Arbitrageur
The part of a loan payment that reduces the total amount of debt owed (and is not interest) is the:
Principal
Premium
Collateral
Basis
