Problem Set 5 Key - AAE 320 Farming Systems Management...

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1 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 Word document. 1) 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 . When possible, use the market value of assets. Missing entries filled in on the Balance Sheet in bold. Miscellaneous Information: 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 receivable. 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 chemicals. 2) Use your completed Balance Sheet from problem 1 to answer these questions. (Note that these should be review from problem set 3): a) 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 b) 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 c) 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 d) 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 e) 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. 3) 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
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2 Statement entries . Note: the completed Schedule F to use is posted in a separate file on the course homepage near the link to this problem set. Missing entries filled in on the Income Statement in bold. 4) Use your completed Income Statement and class notes to answer the following questions: a) What is this farm’s Accrual Adjusted Net Farm Income for 2007? From the last line in the Income Statement: $251,230.
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This note was uploaded on 08/08/2008 for the course AAE 320 taught by Professor Mitchell during the Spring '08 term at University of Wisconsin.

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Problem Set 5 Key - AAE 320 Farming Systems Management...

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