exam1-practice-key

exam1-practice-key - 2007 exam 1 practice Name _ Farm...

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1 2007 exam 1 practice Name ___________________________________ Farm Management _____________________________________________________________________________ Read the following statements. Circle T for True and F for False. 1 pts each. T F 1) Lenders normally prefer a debt-to-asset ratio that is greater than 1. T F 2) If the average borrowing rate for funds is 5% and the rate of return on equity is 6%, then the rate of return on capital will be less than 6%. Note: ROA (%) is a weighted average of the average borrowing rate and the ROE (%). It always falls between the two values. T F 3) A current ratio of more than 1.5 indicates strong liquidity. T F 4) Property taxes are a cash, fixed expense. T F 5) If the percent return on assets (ROA) is less than the percent return on equity (ROE), borrowed money is earning a profit on average. T F 6) The Farm Financial Standards Council recommends the use of accrual accounting methods. T F 7) Net worth will change if outside capital is invested in a business. Note: Net worth increases if outside capital is added to the business, if profits are retained, or assets increase in market value. Net worth decreases if business capital is taken out of the business for personal use, if losses are sustained, or assets decrease in market value. T F 8) If a producer finds that Total Revenue at the profit-maximizing point is less than the Total Variable Costs that year, it is better not to produce at all. T F 9) If an asset is acquired by trading in another asset, for tax purposes, the old asset is removed from the books and the new asset is depreciated on its total price, including the trade in value. Capital gains may be required on the difference between book value and trade in. T F 10) The difference in net worth on a cost-basis versus market-basis balance sheet is the valuation adjustment. Note: On both a cost and market basis, Net worth is found on the balance sheet from the formula, Net Worth = Total Assets – Total Liabilities. On a cost-basis, NW will equal the contributed capital + retained earnings. On a market-basis, NW will equal the contributed capital + retained earnings + valuation adjustment. Thus, it is apparent that the different between cost-basis and market-basis NW is the valuation adjustment.
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2 Fill in the blanks. 2 points each. 1) In a(n) ______accrual______________ accounting system, revenue is recorded when it's actually generated. 2) ___Current asset_______ is the most liquid type of asset; it can easily be converted to cash without disrupting the business. 3)
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exam1-practice-key - 2007 exam 1 practice Name _ Farm...

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