AAE 320 Farming Systems Management Problem Set #5: KEY
April 23, 2008
For this problem set, you will use the given information to complete a Balance Sheet and Income
Statement for an example farm, and then answer various questions based on the results.
I found it
useful to use a spreadsheet.
You can paste these tables directly into Microsoft Excel from this
Use the information given in the Balance Sheet, in Schedules 1-5 (on the next pages), and the
Miscellaneous Information given below to
complete the missing Balance Sheet entries
possible, use the market value of assets.
Missing entries filled in on the Balance Sheet in bold.
On December 31, 2007, the farm was owed $2,100 for custom work
done for a neighbor; at the end of the previous year, it was owed $525 in such an account
On December 13, 2007, the farm purchased $12,881 in fertilizer, seed, and chemicals
for the next year, while at the beginning of 2007, it had $5,226 in pre-paid fertilizer, seed, and
Use your completed Balance Sheet from problem 1 to answer these questions.
(Note that these
should be review from problem set 3):
What is this farm’s current ratio in 2006 and 2007?
2006: 637,648 / 603,237 = 1.057
2007: 707,215 / 585,109 = 1.209
What is this farm’s debt to asset ratio in 2006 and 2007?
2006: 2,815,735 / 6,084,698 = 0.463
2007: 2,636,897 / 6,458,265 = 0.408
What is this farm’s equity to asset ratio in 2006 and 2007?
2006: 1 – 0.463 = 0.537
2007: 1 – 0.408 = 0.592
What is this farm’s debt to equity ratio in 2006 and 2007?
20060.463 / 0.537 = 0.861:
2007: 0.408 / 0.592 = 0.690
Quickly comment on how the farm is doing based on your answers to questions a-d.
Current ratio is too low, especially the case in 2006, better but still not good in 2007.
Regardless, the farm is making its payments and getting ahead in the sense that the owner’s
equity is increasing as the proportion of debt financing decreases.
Use the information from the completed Balance Sheet, Schedules 1-5, the Equity Statement, the
Income Statement, and the completed Schedule F Parts I and II
to complete the missing Income