Economics 330K E Y

Fall 2006

Exam 2

Farm Financial Statements and Analysis

A.Circle the best answer. Put a square around your second choice, if you want.(4 pts each)

1.Which of these is an example of a long-term asset?

a.640 acres of farmland

b.a Holstein dairy cow

c.a farm mortgage loan payable over 25 years

d.50 bags of seed corn ready to plant

2.Enterprise accounting shows the income and expenses for:

a.the entire farm business

b.each employee on the farm

c.each major product or service activity on the farm

d.cash transactions, only

3.Gross revenue is a measure of:

a.economic efficiency

b.volume of production

c.volume of resources

d.solvency

4.“Accrual” net farm income _____ than cash net farm income.

a.is always greater

b.is always less

c.can be either greater or less

d.is a less accurate measure of a farm’s income and expenses for a given year

5.What is the ratio of gross revenue divided by total assets (market value) called?

a.return on assets (ROA)

b.return on equity (ROE)

c.return to management

d.asset turnover ratio

6.The ISU Beginning Farmer Center does all of the following except:

a.tries to match up beginning farmers with retiring farmers

b.provides low interest loans to help young farmers buy land or machinery

c.provides workshops for students who want to return to the farm and their families

d.provides individual consultations and financial analysis for family farms in transition

7.For purposes of filing a farm income tax return, depreciation expense is:

a.not taken into account

b.usually an accurate estimate of how much capital assets decrease in value each year

c.can be used to increase or decrease taxable income in order to level out or postpone taxes

d.calculated using “straight line” methods

8.If a farm had more accounts payable at the end of the year than at the beginning, the corresponding accrual adjustmentto the cash net farm income statement would:

a.increase gross income

b.decrease gross income

c.increase total expenses

d.decrease total expenses

B.Answer as indicated.

9.Indicate where each of the following assets or liabilities would be located on a

January 1 farm Net Worth Statement by writing the corresponding letter and $ values in the format below. Some may require more than one entry. (16 pts.)

a.60 acres of farmland valued at $200,000

b.a 20-year loan on this land for $100,000. It is payable in equal annual principal payments of $5,000 each plus interest at 6%, which has been accruing since the last payment was made on November 1

c.1,000 gallons of diesel fuel worth $2,500

d.$2,000 invested in fertilizer applied in November

e.50 beef cows valued at $35,000 total

f.unpaid feed bill for $1,850

Net Worth Statement – January 1
Assets / Liabilities
Current / Current
Intermediate / Intermediate
Long-term / Long-term

10.Match each statement below to the type of income tax that it describes. (10 pts.)

FI=Federal income tax

SI=State income tax

SE= Self-employment tax

CG=Capital gains tax

____applies to income received from the sale of assets such as machinery, land and breeding livestock

____is taxed at a flat (fixed) rate, up to a maximum amount

____has the highest marginal tax rates

____has the lowest marginal tax rates

____is not based on Schedule F ordinary farm income and expenses

11.Indicate which code number from the Chart of Accounts below you would use for each cash transaction. (10 pts.)

100–cash income

200–new loans received

300–sales of capital assets

400–nonfarm income

600–cash expense

700–loans repaid

800–purchase of capital assets

900–nonfarm expenses

____sold market hogs

____sold a grain wagon to neighbor

____paid cash rent on 160 acres

____purchased the 160 acres

____received an operating loan advance to pay for fertilizer

12.Match each statement below with the financial statement which it describes. (12 pts.)

A.Net income statement

B.Net worth statement

C.Statement of cash flows

D.Statement of owner equity

____indicates how profitable the farm was

____used to analyze a farmer’s solvency

____also called a Balance Sheet

____shows how net worth changed from the beginning of the year to the end of the year

____shows loan principal payments made and new loans received

____shows financial information as of a certain day rather than over a period of time

13.In one sentence summarize what each of the following financial measures analyzes. (6 pts.)

a.Solvency

b.Liquidity

c.Profitability

14.Sugar Loaf Farms had a net farm income of $57,100 last year. They withdrew $38,000 from the farm account for living expenses. They valued the 300 acres of farmland that they owned at $100 per acre more at the end of the year than at the beginning. Show your work. (6 pts.)

a.Did their cost value net worth increase or decrease, and by how much?$______

b.Did their market value net worth increase or decrease, and by how much?$______

15.Pork Chop Hill Farm kept the following inventory records on their farrow-to-finish swineenterprise for last year. Show your work. (8 pts.)

Number / Weight
per Head / Total
Lbs. / Value,
$/lb. / Total
Value
Beginning Inventory / 1,050 / 30 lb. / ______/ $1.00 / ______
Ending inventory / 1,160 / 30 lb. / ______/ $1.00 / ______
Births / 4,650 / 0 / 0 / 0 / 0
Death loss / 60 / 0 / 0 / 0 / 0
Sales / 4,400 / 250 lb. / ______/ $.50 / ______
Retained for breeding herd / 80 / 200 lb. / ______/ $.50 / ______

a.What was their total for sources of pigs?______head

b.What was their total for uses of pigs?______head

c.How many total pounds of gain did they produce?______pounds

d.What was the total gross revenue (accrual) generated?$______

Economics 330

Fall 2006

Exam 2K E Y

1.a

2.c

3.b

4.c

5.d

6.b

7.c

8.c

9.Net Worth Statement – January 1

Assets / Liabilities
c. $2,500 / b. $5,000
d. $2,000 / b. $100,000 x 6% x = $1,000
f. $1,850
Intermediate / Intermediate
e. $35,000
Long-Term / Long-Term
a. $200,000 / b. $95,000

10.CG, SE, FI, SI, CG

11.100, 300, 600, 800, 200

12.A, B, B, D, C, B

13.a.The value of all the assets owned by a farm compared to what it owes.

b.The ability of the farm to easily meet all cash flow obligations on time.

c.The value of a farm’s production compared to the cost of producing it.

14.a.$57,100 - $38,000 = $19,100

b.$19,100 + (300 a. x $100/a.) = $49,100

15.

Number / Weight
per Head / Total
Lbs. / Value,
$/Lb. / Total
Value
Beginning Inventory / 1,050 / 30 lb. / 31,500 / $1.00 / $31,500
Ending inventory / 1,160 / 30 lb. / 34,800 / $1.00 / $34,800
Births / 4,650 / 0 / 0 / 0 / 0
Death loss / 60 / 0 / 0 / 0 / 0
Sales / 4,400 / 250 lb. / 1,100,000 / $.50 / $550,000
Retained for breeding herd / 80 / 200 lb. / 16,000 / $.50 / $8,000

a.1,050 + 4,650 = 5,700 head

b.1,160 + 60 + 4,400 + 80 = 5,700 head

c.34,800 + 1,100,000 + 16,000 – 31,500 = 1,119,300 pounds

d.$34,800 + $550,000 + $8,000 - $31,500 = $56l,300