FBM – Flashcard
148 test answers
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Fred Brown raises corn and feeds it to his hogs. This type of business structure is an example of
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vertical integration.
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If the price of a commodity is too low, the demand will be greater than the supply resulting in a
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shortage.
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A farmer placed too high a value on his land in his closing inventory while al other records were accurate. Net working capital in his record summary is
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not affected.
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When the size of the soybean harvest exceeds locally available farm and elevator storage, what happens to the basis?
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Basis widens.
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The money you must deposit with a broker to insure performance in order to trade in the futures market is called
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margin.
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The short-run supply curve for a firm is identical to
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marginal cost.
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A farm business with declining average total costs has
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increasing returns to size.
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Which of the following is not a type of bankruptcy?
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All are bankruptcy chapters
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The maximum amount that a wife can inherit from her husband without owing any federal estate tax is
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unlimited.
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Many farmers do a considerable amount of custom work. Their reason for doing this is
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All of the above
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Using comparable sales for the purpose of appraising farmland is called the
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market approach to appraising.
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Other things equal, the value of land will be greatest to the farmer who has the
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lowest discount rate.
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The farm return to land, labor, and capital for a year would be found on
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the income statement.
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Which of the following is considered Schedule F farm income?
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Crop sales.
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For the rules of depreciation, which of the following is an example of "listed property"?
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A passenger car
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An LLC (Limited Liability Company) is usually
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taxed like a partnership.
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The main difference between cash and accrual accounting is that accrual accounting includes
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an adjustment for changes in inventory.
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A farmer should issue an IRS Form 1099 for which of the following?
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$650 paid to a neighbor for land rent.
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When required, you must send an IRS Form 1099-MISC to IRS before
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March 1.
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The IRS form use to calculate self-employment tax is
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Schedule SE
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The USDA agency that administers the federal crop insurance program is the
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Risk Management Agency
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Which is not a policy plan for multi-peril crop insurance?
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Management Protection.
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On a crop insurance policy, APH stands for
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Actual Production History
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What type of insurance protects the farmer from lawsuits if he/she is responsible for personal injury or property damage to another person?
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Liability insurance
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Even though corn prices are at record levels, corn farmers still receive from USDA
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direct payments.
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Which of the following should not affect a farmer's decision to store his crop?
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What he paid for his grain bin
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The returns for a farmer who produces his crop under a contract as compared to a farmer who produces none of his crop under contract would be
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less variable.
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For an amortized loan, the amount of interest in the first payment will be
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None of the above
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Crop prices increase, causing Marcia's sales income to increase while leaving her cash operating expenses unchanged. This will cause her capital turnover to
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increase.
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For the tax year 2015, the social security wage base was
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$118,500
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The two primary methods of describing the size and location of farmland are rectangular survey and
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metes and bounds.
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How many acres are in a quarter section of land?
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160 acres
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Which of the following farm items is not eligible to be depreciated?
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Raised heifers added to the breeding herd
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Advantage of incorporating the farm business include all of the following except
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simpler record keeping.
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A decrease in the value of the U.S. dollar relative to the currency of other countries should result in
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more costly imports.
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Carrie Cattlefeeder buys feeder cattle and corn and sells fed cattle. If she wants to be totally hedged in the futures market for her price risk in the coming year, she would be
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"short" fed cattle, "long" feeder cattle, and "long" corn.
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The best indication that a farmer is making financial progress year-to-year is
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an increase in net worth on the balance sheet.
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Farmer Brown has a debt-to-asset ratio of 47%. His debt-to-equity ratio must be
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Less than 100%.
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The maximum amount that can be claimed as a Section 179 expense deduction on your 2015 tax return is
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$500,000.
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A farmer's net returns per acre for establishing alfalfa the first year are negative, but he makes money for each of the next four years before the alfalfa has to be reestablished. In preparing an enterprise budget to compare alfalfa with other crops
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he should amortize the establishment year losses over the remaining four years.
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Which is heavier, a bushel of corn of shelled corn or a bushel of soybeans?
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Soybeans
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When an increase in production of one enterprise causes a reduction in the production of another enterprise, the two enterprises are said to be
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competitive.
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A grain farmer who normally stores his soybeans at a local elevator has decided to use the options market to create a synthetic storage. To do so he will sell his beans at harvest and
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buy a call option.
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The primary goal of income tax management for a farm operator is to
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maximize the farm's after tax income.
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The demand curve shows that the relationship between
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price and the quantity demanded.
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If the total cost of producing 100 units of output is $500 and the average variable cost is equal to $1, then which of the following statements is true?
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Average fixed cost is equal to $4.
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The best measure of a firm's ability to make a short-term loan payment is
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current ratio.
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If the U.S. wheat industry has an inelastic demand curve, a decrease in the amount of wheat supplied to the market would
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increase the total revenues for wheat producers.
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A trader with a long position in the futures market
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profits when prices go up, loses when prices go down.
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Livestock, stored grain, land, and personal property used to secure a loan are
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collateral.
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Which of the following is not a supply shifter for farm products?
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consumer income
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Cooperatives pay patronage refunds according to
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amount of business done by patron.
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For a trader who is short in the market, a standing order to buy should the futures price move above a certain level is called a
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stop order.
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On March 1, Sue borrows $50,000 to be paid back in December and puts it in her checking account. This will cause her current ratio to
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Any of the above
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Interest rates go up, causing Jack's annual interest expense to increase from $12,000 to $14,000. This will cause his rate of return on equity to
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decrease.
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Crop prices decline, causing Marcia's sales income to decline while leaving her cash operating expenses unchanged. This will cause her capital turnover to
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decrease.
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The ability of larger firms to be more profitable than smaller firms in the same industry is an example of
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economies of size.
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If the Chicago Board of Trade website indicates today's open for the July corn futures contract was 372'6, what price is this?
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$3.7275 per bushel
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You are having a good business year and it looks as if taxable income is going to be a lot more than it was last year. Which of the following steps would be the best tax management before the end of the tax year?
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Buy $15,000 worth of fertilizer for the next crop year
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A farmer who buys feeder pigs could use the options market to reduce his price risk by
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buying a hog Put option.
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The demand for food is usually considered an inelastic demand. This implies that for a given percentage change in price,
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the percentage change in quantity demanded is less.
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The demand for an item with many possible substitutes is ________ than the demand for an item with a few substitutes.
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more elastic
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The rate of return to equity will be highest when
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the interest rate on borrowed funds is less than the rate of return to assets.
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Which of the following statements regarding equity is not true?
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Equity must always be less than total liabilities.
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If the supply of a good in inelastic , a 10% change in the price of the good would produce a change in the quantity supplied of
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less than 10%.
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The total consumer demand and producer supply of leechynuts were equal to 1 million nuts when the price was $1 per nut last year. This year the price is $1.25. Which of the following statements is true?
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Not enough information given to determine quantity supplied or demanded.
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You are driving down a Missouri country road, exercising reasonable care, when you run into a stray hog standing on the road. You suffer car damages of $3,500 and the hog (valued at $120) is dead.
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The hog owner is presumed to be negligent.
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For income tax purposes, depreciation charges are
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deducted from operating income.
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Return to management is net cash farm income
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minus the value of unpaid labor, depreciation, interest on equity capital, and net inventory changes.
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Return to operator's labor and management is net farm income
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minus the interest on equity capital.
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The effect of appreciation in an asset's value, such as an increase in land value
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is not shown on the cash flow statement.
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Inflation means
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a dollar will buy less in the future than it will buy today.
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Corn and grain sorghum are substitutes for each other in many livestock feed rations. Assuming they are substitutes, a decrease in the supply of corn would cause the demand for grain sorghum to
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shift to the right.
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Accrued interest on a balance sheet refers to
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interest that has accumulated since the last loan payment.
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A livestock producer wishing to use the futures market to hedge the price of cattle he anticipates selling in the future would initially
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sell futures contracts expecting to buy them back when he sells his cattle.
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Capital used in a farmer's beef breeding herd could be invested in stocks, bonds, land, or some other asset. This illustrates the principal of
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opportunity cost.
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In a livestock enterprise budget prepared on July 1, home-grown feed
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should be included, valued at its net market price.
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The law of supply states that
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as product price decreases, a smaller quantity will be supplied.
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The Universal Soil Loss Equation estimates soil erosion in tons per acre per year = R (rainfall factor) x K (soil erodibility factor) x LS (combination of slope percentage and slope length) x C (crop management factor) x P (conservation practice factor). The P factor for contour farming is 0.5. This indicates
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Contour farming reduces soil loss by 50% per acre per year.
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A deduction that allows an owner or operator to account for the reduction of a product's reserves is called
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depletion.
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Understanding the amount of debt on a net worth statement results in
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a smaller debt-to-equity ratio.
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Which of the following can influence the value of land?
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All of the above
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For tax year 2007, a self-employed individual may deduct _____% of his/her cost for health insurance?
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100%
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As a farmer plants more acres of a crop, which of the following costs is least likely to change?
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Average variable costs per acre
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Average total cost is equal to
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(total variable costs + total fixed costs) divided by output.
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When required, you must send an IRS Form 1099-MISC to the individual paid by
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January 31.
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On a crop enterprise budget that does not include any charges for land, which number corresponds to the maximum amount that a farmer could pay in cash rent per acre in the short run?
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Returns above total operating costs
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On a crop enterprise budget that does not include any charges for land, which number corresponds to the maximum amount that a farmer could pay in cash rent per acre in the long run?
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Returns above total costs
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The main drawback of an adjustable rate mortgage is that
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interest rate can increase.
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The cost of producing one additional unit of output is called
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marginal cost.
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USDA has an FSA office in most rural counties. FSA stands for
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Farm Service Agency.
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Collectively, amino acids are usually called
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protein.
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A 2-wheel drive tractor typically requires more horsepower to pull the same implement as a 4-wheel drive tractor because
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2-wheel drive tractors have more slippage.
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A farmer is solvent if
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he has sufficient assets to cover all debts.
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A Subchapter S corporation can have no more than
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100 shareholders.
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Purchase of a call option on corn means the buyer
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may buy, but is not required to buy, a corn futures contract at a set price.
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Purchase of a call option on corn means the buyer
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may buy, but is not required to buy, a corn futures contract at a set price.
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The disadvantage of leasing a tractor as compared to purchasing is that leasing
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decreases you depreciation and capital expensing.
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The capital gains taxes that would be due should a farmer sell his land is an example of a
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contingent liability.
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Which USDA agency's primary activity is conducting surveys to determine farm, production, prices income, and expenses?
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National Agricultural Statistics Service (NASS)
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Which of the following statements regarding accrued interest is most nearly true?
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Accrued interest is not a cash expense until it is paid.
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Diminishing marginal returns to a factor of production are most likely to occur when
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one factor is increased and all others are fixed.
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A cattle feeder, wishing to use futures markets to hedge the price of slaughter cattle, would at the time of his cattle purchase
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sell futures contracts expecting to buy contracts when selling cattle.
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An increase in the value of the U.S. dollar relative to the currency of other countries should result in
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less costly imports.
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A vicious cold spell in the late spring has wiped out the buds on the peach trees grown in Georgia, a major peach producing state. How will this freeze impact the price received for peaches by Maryland peach producers?
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Because of the reduced supply, prices for peaches in Maryland will tend to move upward.
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The Social Security wage base
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does not apply when calculating Medicare taxes.
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A written agreement by which an owner of property transfers title to someone for the benefit of beneficiaries is a
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trust.
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The price of widgets changes from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. From this we can conclude that
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the demand for widgets is elastic.
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In analysis of a farm, what would you do if a cash flow projection indicated that there would be more expense than income in a certain month?
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Use savings, delay expenses, move up sales, or borrow money.
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Which of the following would not appear on a cash flow statement?
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Depreciation expense on a tractor.
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Frank's beginning balance sheet showed $40,000 in corn stored at the local elevator. Which of these would not explain his ending balance sheet entry of $20,000 corn stored at the local elevator?
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All of these could explain the decrease.
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Frank expects his wheat to yield 40 bushels per acre and sell for $5 per bushel. He has spent $75 per acre on seed, fertilizer, fuel, and chemicals so far as of January 1. It will cost $20 per acre to harvest and deliver the wheat to market. Right now the wheat price is only $4.50 per bushel. His balance sheet asset entry should reflect
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the $75 per acre he has spent so far.
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The self-employment tax rate for Medicare is
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2.90%
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The Kansas City Board of Trade wheat futures contract is for
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hard red winter wheat.
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The total tax deduction for conservation expenses in any tax year is limited to ____% of your gross income from farming for the year.
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25%
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Farmer Jones has less current assets than current liabilities. Her current ratio is
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between 0 and 1.
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Economists use elasticities to relate the percentage change in one variable to the percentage change in another variable. The cross-price elasticity of demand estimates the impact on the demand for a good with respect to the change in the price of another good. A positive cross-price elasticity indicates the two goods are
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substitutes.
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The own-price elasticity of supply estimates the impact on the quantity of a good supplied by a change in the price of the good. Normally, one would expect the own-price elasticity of a supply to be
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positive.
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The income elasticity of demand estimates the impact of a change in income on the demand for a good. For normal goods, the income elasticity of demand is
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positive.
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How many square feet are in an acre?
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43,560
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The term "exchange rate" refers to
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how much of one currency is needed to acquire a unit of another currency.
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A cord is a stack of wood measuring
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4' x 4' x 8'
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A procedure for expressing future cash flows in today's dollars is called
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discounting.
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Farmer Brown has a debt-to-asset ratio of 53%. His debt-to-equity ratio must be
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Greater than 100%.
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For an amortized loan, the present value of the loan payments discounted at the loan's interest rate is equal to
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the amount of money borrowed.
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Farmer Johnson has a rate of return on assets of 9% when assets are valued using the cost method, and a rate of return on assets of 5% when the assets are valued using market valuation. This means that the value of assets using the cost method
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is less than the market valuation.
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To consider the time value of money in analyzing alternative farm investments, one should choose the investment with the
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highest net present value.
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You can claim a tax deduction for a charitable contribution of $_____ or more if you have a written acknowledgment from the charitable organization.
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$250
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Total interest to be paid over the life of an amortized loan equals
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number of payments time size of payment minus amount borrowed.
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A metric ton weighs
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2204.6 pounds.
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A hectare equals
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2.47 acres
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The CME live cattle futures contract is for ____ pounds of fed cattle.
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40,000
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In legal terminology, an agent has one's
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authority to transact business.
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How many bushels of corn are in a metric tonne?
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39.4
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If inflation causes both cost and income to increase by 10%, then you would expect profits to
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increase by 10%.
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How many fluid ounces are in a gallon?
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128
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The net business profit for a year would be found on
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the income statement.
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Changes in price within a year, which tend to follow the same pattern over time, are called
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price seasonality.
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A corn futures contract at the Chicago Board of Trade is for
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5,000 bushels
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By contributing the maximum amount to a Roth IRA, a 40-year-old farmer will reduce his taxable income by
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$0.
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The "c" in "cwt" stands for
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100.
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What USDA agency administrators income support programs for a crop farmers?
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FSA
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When a farmer borrows money to purchase land, he usually must offer the title to the property as security until the debt has been repaid. This credit instrument is commonly referred to as a
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check.
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The main difference between a joint tenancy and a tenancy in common is
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the surviving joint tenant will eventually own all of the land as a result of the right of survivorship.
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