AAE 320 Spring 2007
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
missing cells and then answer the questions below.
Total Liabilities 1,020,000
Total Liabilities and Equity 2,540,000
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
grain, milk, feeder livestock (all less than 1 year on farm)
machinery, buildings, breeder livestock (all more than 1 year on farm)
Any debt due within 1 year, operating loan to plant crop/buy livestock
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.