Exam 2 2007 Key

Exam 2 2007 Key - AAE 320 Spring 2007 Exam #2 Name: _KEY_...

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AAE 320 Spring 2007 Exam #2 Name: ____KEY _____________________ 1) (34 pts. total) Below is a simplified farm Balance Sheet. a) (14 pts.) Use the information given and your knowledge of the relationships among Balance Sheet entries to fill in the seven missing cells and then answer the questions below. BALANCE SHEET 12/31/2006 12/31/2005 12/31/2006 12/31/2005 Current Assets 840,000 800,000 Current Liabilities 470,000 390,000 Non-Current Assets 1,700,000 1,500,000 Non-Current Liabilities 550,000 515,000 Total Liabilities 1,020,000 905,000 Equity 1,520,000 1,395,000 Total Assets 2,540,000 2,300,000 Total Liabilities and Equity 2,540,000 2,300,000 12/31/2006: Total Assets – Non-Current Assets = Current Assets = 840,000 12/31/2005: Total Assets – Current Assets = Non-Current Assets = 1,500,000 12/31/2006: Total Liabilities – Current Liabilities = Non-Current Liabilities = 550,000 12/31/2005: Total Liabilities – Non-Current Liabilities = Current Liabilities = 390,000 12/31/2005: Total Liabilities and Equity – Total Liabilities = Equity = 1,395,000 Total Liabilities and Equity on 12/31,2005 and 2006 must equal Total Assets on same dates b) (4 pts.) This Balance Sheet only lists values for generic categories of assets and liabilities. Give one specific farm/agricultural example for each type below: ( Many possible, some given ) Current Asset: grain, milk, feeder livestock (all less than 1 year on farm) Non-current Asset: machinery, buildings, breeder livestock (all more than 1 year on farm) Current Liability: Any debt due within 1 year, operating loan to plant crop/buy livestock Non-current Liability: Any debt due over 1 year later, land mortgage c) (4 pts.) Explain what the Current Ratio is and why it is important to a farm or business. Current ratio measures liquidity , the ability of the farm to generate cash without disrupting the normal flow of business (don’t want to sell a tractor to pay for fuel to harvest corn). d) (4 pts.) Based on this Balance Sheet, what is the Current Ratio on 12/31/2006? How does it compare to “typical” Current Ratios for dairy farms as we discussed in class. Current Assets / Current Liabilities = 840,000 / 470,000 = 1.79. Generally okay, a little high for most dairies, which range 1.5-1.3.
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e) (4 pts.) Explain what the Debt to Asset Ratio, the Equity to Asset Ratio, and the Debt to Equity Ratio are and why they are important to a farm or business.
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Exam 2 2007 Key - AAE 320 Spring 2007 Exam #2 Name: _KEY_...

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