March 6, 2008
Name: KEY Participant #:
2008
North Carolina FFA
Farm Business Management Career Development Event
Section I: Multiple Choice (100 points)
There are 25 questions on this section of the event. Please check carefully to see that you have six pages including this cover page.
Read each question carefully. Circle the letter for the one best answer. Each question is worth four (4) points. You have 25 minutes to complete this section of the event.
prepared by the
Department of Agricultural and Resource Economics
College of Agriculture and Life Sciences
North Carolina State University
NCSU Box 8109
Raleigh, North Carolina 27695
919. 515-4544
www.ag-econ.ncsu.edu
in cooperation with the
Department of Agricultural and Extension Education
College of Agriculture and Life Sciences
North Carolina State University
sponsored by
Southern States Cooperative, Inc.
1. Net worth is a measure of:
A. managerial ability
B. financial position [07nationalCDE]
C. profitability
D. liquidity
2. What would you do if the cash position in a certain month indicated that there would be more expenses than income?
A. terminate the enterprise causing the cash flow problem that month
B. cash from cash to accrual accounting
C. use savings, delay expenses, move sales, or borrow money [07nationalCDE]
D. change depreciation methods
3. Which of the following expense items would not be included in a projected cash flow?
A. family living and other non-farm expenses
B. depreciation on machinery [07nationalCDE]
C. cash paid for machinery purchases
D. current principal payments on long term debt
4. A farmer has historically forward contracted the price they receive for the crops they have grown. The farmer would like to obtain the benefits if prices increase, but maintain the floor if prices fall. Which one (1) of the following alternatives should they consider?
A. sell a put option
B. buy a put option
C. sell a call option
D. buy a call option [07nationalCDE]
5. What date following the year of employment are completed Form W-2 Wages and Tax Statement due to the farm business employees?
A. April 15
B. February 15
C. January 31 [07nationalCDE]
D. January 15
6. The opportunity cost of one more unit of a variable input (like a pound of fertilizer) is the
A. return from using the one pound of fertilizer in its next best use. [JohnDeeref&rbmgmttext]
B. market value of the pound of fertilizer at the time of its use.
C. cost of the pound of fertilizer at the time of purchase.
D. same as the marginal cost of the pound of fertilizer.
7. A limited liability corporation (LLC) is defined as a business organization that is
A. structured as a corporation and that qualifies as a corporation for all purposes except taxation. [subchapter S corporation}
B. created when two or more person join together to conduct a business and to share in its profits and losses. [partnership]
C. achieves the favorable tax attributes of a partnership, the limited liability of a corporation, and a high degree of flexibility to fit business needs. [07nationalCDE]
D. is separate and distinct for its owners and managers. Share holders own the business. Officers manage the business. [corporation]
8. Hedging is
A. the selling of a commodity futures contract to protect a producer from price fluctuations in the marketplace at the time the product is sold. [07nationalCDE]
B. a written agreement that specifies that a certain commodity will be delivered at a particular location as a future time for an exact price. [forward contract]
C. the difference between the local cash price and the price of the near term (expiring) futures contract. [marketing basis]
D. an upward trend in market prices [bull market]
9. Inventories must be completed in order to maintain accurate records of assets and liabilities. In addition, it is necessary to know what a farm business has in the beginning to evaluate your progress. Calculate the value of the following inventory item (round your answer to the nearest dollar).
10 acres of growing wheat with expenses to date of:
15 bushels of seed wheat at $4.75 per bushel
$250 in fertilizer
$100 in equipment rental
A. $350
B. $355
C. $365
D. $421 [JohnDeeref&rbmgmttext]
10. Three financial indicators that can be calculated from the net worth statements are liquidity, solvency, and equity. Liquidity is the:
A. ability of all assets, if sold at market value, to cover all debts
B. ability of a business to generate enough cash to pay bills without disrupting business. [JohnDeeref&rbmgmttext]
C. amount of water required to operate a farm business for one year.
D. amount cash received by farm business in a one year period.
11. The price of beef is determined by the supply of beef and the demand for beef. A change in price occurs when the demand for beef increases or decreases even thought he supply remains constant. Which of the following causes a change in demand for beef?
A. decrease in the number of cattle
B. increase in the number of beef cattle producers
C. increase in the cost of producing beef
D. increase in the income of beef consumers [JohnDeeref&rbmgmttext]
12. A projected cash flow can assist a farm business to
A. calculate its return on assets.
B. estimate its current ratio.
C. project its net farm income. [06nationalCDE]
D. determine what enterprises to produce next year.
13. For 2008, a farm business has projected cash inflows of $722,498 and cash outflows of $742,543. The farm business will have a
A. negative cash flow of $20,045. [06nationalCDE]
B. net farm income of $-20,045.
C. net worth decrease $-20,045.
D. negative income change of $20,045.
14. A farm business where it can be exposed to changes in demand and therefore changes in price that is totally beyond their control is referred to as being
A. a price maker.
B. a price taker. [06nationalCDE]
C. price neutral.
D. profitable.
15. A farm owner/ manager has decided that renting land for cash rather than shares of production results in
A. less risk for the landlord and more risk for the tenant. [05nationalCDE]
B. less risk for both the landlord and the tenant.
C. more risk for the landlord and less risk for the tenant.
B. more risk for both the landlord and the tenant.
16. An enterprise budget is:
A. a record of past production performance.
B. a tool used in analyzing only changes in the farm operations and the potential change in net income.
C. a physical and financial plan for the entire farm business for a specific period of time.
D. a statement of projected costs and returns associated with one production process, usually for one production period. [05nationalCDE]
17. If a farmer writes a check for $14,000 to pay off the remainder of a tractor loan
A. assets, liabilities and equity each decrease.
B. assets and liabilities decrease and equity is not affected. [04ncCDE]
C. liabilities decrease and equity increases
D. assets and equity decreases
18. A farmer was late getting soybeans planted and an early frost hit the crop before the crop had matured. The harvest costs are $40 per acre and the returns would be $60 per acre. Prior to the frost, $110 per acre was invested in operating expenses. The farmer should
A. harvest half the acres and abandon the other half.
B. harvest the soybeans and sell the soybeans for $60 per harvested acre. [95nationalCDE]
C. rent the field to a neighbor for $10 per acre to use or grazing livestock (rather than harvesting the soybeans)
D. abandon the soybean crop because the farmer cannot cover all variable expenses.
19. Entering into a futures transaction when you will either have the physical commodity to sell in the future, or you will need the physical commodity as an input to your business in the future is called
A. forward cash contracting.
B. day trading
C. speculating
D. hedging [new08]
20. A beef cattle feeding operation has sales of $50,000, feed purchases of $5,000, other costs of $40,000, an opening inventory of $40,000, and a closing inventory of $42,000. What is the net farm income to this farm business operation?
A. $27,000
B. $17,000
C. $7,000 [new08]
D. $2,000
[50,000- 45,000+ 2,000 = $7,000]
21. The book value of a piece of farm equipment is the
A. sentimental value the item to the farm business owner.
B. cost of the item minus depreciation. [new08]
C. cost of the time plus the total depreciation to date.
D. value that the item currently has on the open market.
22. An income statement is useful to a farm business in measuring
A. the total value of assets.
B. the amount of the farm business’ debt.
C. the farm business’ yearly profit or loss. [new08]
D. net worth
23. Loan repayment capacity is best measured by the
A. check book balance.
B. profit and loss statement.
C. projected cash flow statement. [99nationalCDE]
D. enterprise budgets.
24. When a farm business increase an investment in buildings and equipment for a beef cattle enterprise without increasing the total units of production, the cost per unit of production
A. increases. [99nationalCDE]
B. decreases.
C. remains the same.
D. varies with the operator of the farm business.
25. One advantage of leasing is that
A. investment credit can be used for leasing.
B. leasing does not require as much initial capital. [94nationalCDE]
C. leasing always provides a larger deduction than depreciation.
D. lease payments are tax deductible while interest payments are not.
End of the multiple choice section of the 2008 NC FBM CDE
North Carolina FFA Farm Business Management CDE – 2008 Key page 1