1 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%. 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. 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.
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