1995 MISSOURI YOUNG FARMERS ASSOCIATION FARM BUSINESS MANAGEMENT CONTEST Columbia, Missouri February 4, 1995 Please place your answers in the appropriate box on the answer sheet provided. There is only one correct answer to each question. 1. For tax year 1994, the social security wage base is A. $17,500 B. 35,800 C. 50,000 D. 60,600 E. None of the above 2. In using the options market for hogs, the producer will usually A. lock-in a price B. lock-in a maximum price C. lock-in a minimum price D. be able to ignore basis E. both C and D 3. Fred Brown raises corn and feeds it to his hogs. This type of business structure is an example of A. vertical integration. B. horizontal integration. C. supply company. D. marketing cooperative. E. None of the above 4. 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? A. Buy $20,000 of feeder steers B. Postpone buying the $45,000 tractor until next year C. Buy $15,000 worth of fertilizer for the next crop year D. Sell 5,000 bushels of corn right now E. Put up a $15,000 pole barn this year 5. A soybean producer decides to store his soybeans in the local elevator for eight months. The price at harvest is $5.50 per bushel and the elevator charges 2› per bushel per month for storage plus a 5› per bushel handling charge. He has 4,000 bushels to sell and must borrow $22,000 at 9% annual interest while he stores the soybeans. What price must he receive for his soybeans to break even and cover his storage and opportunity costs? A. $5.83 B. $5.86 C. $5.90 D. $6.04 E. None of the above 6. A $50,000 loan is amortized at 10% interest for 5 years yields annual payments of $13,189.87. How much of the first year's payment is principal? A. $3,189.87 B. $8,189.87 C. $11,870.88 D. $13,189.87 E. None of the above 7. For the above loan of $50,000, if the fifth and final payment includes $1,199.08 of interest, what was the outstanding principal balance after the fourth payment? A. $3,189.87 B. $8,189.87 C. $11,990.79 D. $13,189.87 E. None of the above 8. For the above loan of $50,000, how much total interest is paid over the life of the loan? A. $5,949.35 B. $15,949.35 C. $25,000.00 D. $65,949.35 E. None of the above 9. If the interest rate is 10%, what is the present value of a dollar to be received by a producer two years from now? A. $0.826 B. $0.900 C. $1.100 D. $1.210 E. None of the above 10. If corn silage as fed contains 65% moisture and 2.8% protein, the dry matter would be what percent protein? A. 2.80 B. 4.31 C. 5.77 D. 8.00 E. None of the above 11. Farmer Brown purchases a new tractor. A record keeping system which records both the addition to equipment and the reduction of cash is called: A. Income statement B. Dual effect C. Balance sheet D. Double entry E. None of the above 12. In 1994, Pat Parker had net farm income of $35,000. Pat had total business assets of $600,000 and total liabilities of $350,000. Pat paid $32,000 in interest. Rate of return on equity for 1994 would be: A. 5.8% B. 11.2% C. 12.8% D. 14.0% E. None of the above 13. A part-time farmer has 200 acres of land, 10 cows and can only work 550 hours per year on his farm. An acre of corn requires 3 hours of labor and yields 80 bushels. An acre of beans take 2.2 hours and yields 30 bushels. Each cow needs 7 hours of labor, 3 acres of land, and consumes 16 bushels of corn. What is the maximum number of acres of soybeans he can grow if the farmer keeps 30 cows and does not buy any corn? A. 89 B. 94 C. 104 D. 110 E. None of the above 14. 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? A. More than 1 million leechynuts will be supplied. B. Less than 1 million leechynuts will be supplied. C. More than 1 million leechynuts will be demanded. D. Less than l million leechynuts will be demanded. E. Not enough information given to determine quantity supplied or demanded. 15. A farmer purchases 500-pound feeder steers for 85› per pound and plans to sell the steers at 800 pounds. The farmer estimates the total cost of gain to be 54› per pound. The nearest breakeven price when the steers are sold at 800 pounds is A. 60.7›/pound B. 64.7›/pound C. 73.4›/pound D. 76.7›/pound E. None of the above 16. At the beginning of last year, a farmer had an outstanding loan for $100,000. The interest rate was 9% APR. If the farmer made one loan payment at the end of the year of $20,500, what was the outstanding balance at the end of the year? A. $74,600 B. $84,600 C. $88,500 D. $95,400 E. None of the above 17. The nearby hog futures contract closed at $49.80 with a local basis of $1.85 under the board. The local cash market was A. $47.95 B. $49.80 C. $50.00 D. $51.65 E. None of the above 18. A farmer has total assets of $500,000 of which land is $300,000. The farmer's debt:equity ratio is 1.0. What will the farmer's debt:equity ratio be if the lender devalues the land by 15%? A. .64 B. .88 C. 1.14 D. 1.22 E. None of the above 19. Return to management is net cash farm income A. minus debt payments. B. minus the value of unpaid labor, depreciation, interest on equity capital, and net inventory changes. C. minus the value of operator's labor and interest on debt payments. D. minus the interest on equity capital, depreciation, and adjustments for inventory changes. E. None of the above 20. Specialization in crops or livestock in a farm business tends to A. increase income and increase risk. B. decrease income and increase risk. C. decrease risk and increase income. D. decrease risk and decrease income. 21. An enterprise system of accounts A. separates taxable income from nontaxable income. B. differentiates between the value of the operator's labor, management, and capital. C. involves keeping separate records of receipts and expenses for each individual product or class of products. D. is required for income tax purposes. 22. The process of finding the future value of a dollar is known as A. compounding. B. discounting. C. forwarding. D. ratio analysis. 23. If the price of a commodity is too low, the demand will be greater than the supply resulting in a A. surplus. B. boycott. C. monopoly. D. shortage. 24. A farmer is purchasing a new baler at a cost of $24,000. His dealer will finance the baler under the following terms: 10% down payment with the balance repaid in equal payments over the next five years at 10% APR. The farmer expects the baler to last for 9 years and have a salvage value of $2,000. How much interest will the farmer pay the first year of the loan? A. $2,160 B. $2,340 C. $2,600 D. $4,680 E. None of the above 25. 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 A. shift to the left. B. shift to the right. C. decrease. D. remain unchanged. 26. On April 1, 1994, Lynn borrowed $25,000 to buy seed and fertilizer. On December 1, 1994, she repaid the $25,000 along with $1828.13 interest. What annual interest rate did she pay? A. 9.75% B. 10.97% C. 11.75% D. 12.25% E. None of the above 27. For 1995, the self-employment tax rate for Social Security and medicare is A. 4.58%. B. 7.65%. C. 15.30%. D. 25.00%. E. None of the above 28. A farmer who buys feeder pigs could use the options market to reduce his price risk by A. buying a hog Put option B. selling a hog Put option C. buying a hog Call option D. selling a hog Call option E. All of the above 29. A feedlot operator purchases a pen of 100 feeder steers with an average weight of 750 pounds and sells them at an average weight of 1041 pounds. Total feed cost for the pen is $15,000. Feed cost per pound of gain is equal to A. $0.440 B. $0.515 C. $0.600 D. $0.720 E. None of the above 30. The quantity of corn used decreases from 9 billion bushels to 7.5 billion bushels as result of a price increase from $2.10 to $2.85 per bushel. This indicates the demand for corn is A. inelastic. B. elastic. C. less than the quantity supplied. D. more than the quantity supplied. E. None of the above 31. A farmer placed too high a value on his calves in his closing inventory while all other records were accurate. Net capital ratio in his record summary is A. too high. B. too low. C. not affected. D. fixed. 32. An increase in the value of the U.S. dollar relative to the currency of other countries should result in A. more costly imports. B. less costly imports. C. increased exports. D. no effect on imports or exports. 33. When the size of the soybean harvest exceeds locally available farm and elevator storage, what happens to the basis? A. Basis narrows B. Basis widens C. Basis goes out of existence D. Basis is usually the same all year long 34. How many total acres are included in "SW 1/4 of NE 1/4 and SE 1/4 of NW 1/4 of Section 15, Twp. 10N, R4W of the 5th Principle Meridian"? A. 80 acres B. 120 acres C. 160 acres D. 320 acres E. None of the above 35. How much perimeter fence would be required to completely enclose the parcel of land described in question 34? A. 1.0 mile B. 1.5 miles C. 2.0 miles D. 2.5 miles E. None of the above 36. 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 A. buy a put option. B. sell a put option. C. buy a call option. D. sell a call option. Use the following information to answer Questions 37-41. Present Future Present Value of Value of Value of N a $1 a $1 Annuity 1 0.913 1.095 0.913 2 0.834 1.199 1.747 3 0.762 1.312 2.509 4 0.696 1.437 3.205 5 0.635 1.575 3.840 6 0.580 1.724 4.420 37. A vineyard will produce no income during the first year, $1,000 at the end of each year for the next 4 years and $2,000 at the end of the sixth year. What is the present value of this income stream? A. $3,987 B. $4,087 C. $5,000 D. $6,000 E. None of the above 38. A beef cow produces after-tax returns at the end of the year of $90/year for 5 years and can be sold for $500 at the end of the fifth year. Assume the above table uses the appropriate discount rate and determine the current value of the cow. A. $345.60 B. $589.33 C. $663.10 D. $836.50 E. None of the above 39. With three years of income remaining in a beef cow, how much should she be worth using the above tables? A. $305.42 B. $398.17 C. $413.45 D. $606.81 E. None of the above 40. If the farmer expects interest rates to increase, but no increase in net returns to cattle, what impact is this likely to have on the present value of the beef cow? A. decrease the present value B. increase the present value C. would not change the present value D. can not tell 41. If the average tax rate is expected to increase over the next three years so that the cow no longer nets $90/year after taxes. What impact would this have on your answer to question 38? A. Increases the value B. Decreases the value C. No change in the value D. Can not tell 42. A Subchapter S corporation can have no more than A. 10 shareholders. B. 15 shareholders. C. 25 shareholders. D. 35 shareholders. E. There is no limit on number of shareholders. 43. The money you must deposit with a broker to insure performance in order to trade in the futures market is called A. basis. B. margin. C. commission. D. spread. E. None of the above 44. A feeder cattle producer has 57 head of 750 pound steers and can sell them for $80 per cwt. or send them to a custom feedlot which guarantees the feeder 55› per pound cost of gain. What price per cwt. will the producer have to receive if he sends them to the feedlot in order to break even with the offer he has at $80 per cwt. when they weigh 750 pounds? Assume he plans to feed them to a weight of 1100 pounds. Disregard the opportunity cost of capital, death loss, and shrink. A. $69.32 per cwt. B. $72.05 per cwt. C. $73.41 per cwt. D. $79.25 per cwt. E. None of the above 45. Sometime back you bought a $71.00 October live cattle future Put for $3.00. It's now late September and October futures are $65. The option expires next week and the $71.00 Puts are selling for $6.00. Your cattle are ready for market and a buyer has offered you $64.00/cwt. What is your most likely course of action? A. Sell your cattle for $64 and let the option expire B. Hold the cattle until the cash price equals the futures price C. Sell both your cattle and your Put now D. Sell your cattle now and buy another Put 46. In the event a business is forced to liquidate, which of the following would have first claim on the proceeds? A. Mortgage B. Accounts payable C. Holders of common stock D. Unsecured creditors 47. When borrowing money on the discount method, interest is A. charged on the unpaid principal balance. B. calculated on the total amount of the loan and then subtracted from the amount loaned. C. charged on the original loan amount and added to the principal balance. D. calculated and paid at the end of the loan repayment period. Use the balance sheet information listed below to answer questions 48-52. Balance Sheet Current assets $109,214 Intermediate assets $166,000 Fixed assets $457,000 Short-term liabilities $ 58,500 Intermediate liabilities $ 22,500 Long-term liabilities $207,000 48. What is the farm's net worth? A. $247,000 B. $444,214 C. $485,214 D. $732,214 E. None of the above 49. What is the farm's net capital ratio? A. 1.50 : 1 B. 1.78 : 1 C. 2.54 : 1 D. 2.96 : 1 E. None of the above 50. What is the farm's percent equity? A. 33.7% B. 50.9% C. 60.7% D. 66.3% E. None of the above 51. What is the farm's current ratio? A. 1.50 : 1 B. 1.78 : 1 C. 1.87 : 1 D. 2.96 : 1 E. None of the above 52. What is the farm's dollars of working capital? A. $50,714 B. $157,500 C. $247,000 D. $485,214 E. None of the above 53. The capitalized value of land that yields $50 per year in net returns to land is $__________ if the interest rate is 10%. A. $5 B. $50 C. $500 D. $5,000 54. An advantage of making an estate the beneficiary of a life insurance policy is to A. reduce estate tax liabilities. B. decrease the size of the estate. C. provide insurance protection to heirs. D. provide liquid funds to the estate. E. All of the above. 55. Corn has an expected yield of 120 bushels per acre and has a production cost of $140.00 per acre. Current market prices are $2.50 per bushel for corn and $6.25 per bushel for soybeans. Soybeans can be raised at a production cost of $110 per acre. At what breakeven yield per acre would soybeans generate the same net return per acre as dryland corn? A. 31.9 bushels B. 35.2 bushels C. 38.7 bushels D. 43.2 bushels E. None of the above 56. The major advantage of computerized accounting as compared to a record book is that computerized accounts A. are more accurate B. are easier to manage C. allows for easier analysis D. forces you to be a better manager E. cost less 57. The present value of a 5-year annuity ($1,000 a year at the end of each year for 5 years) is $4,000 using a particular interest rate. If you could borrow $8,000 today at the same interest rate to be paid back in 5 equal payments at the end of each year, what would your annual payment be? A. $2000 B. $2500 C. $4000 D. Not enough information to tell E. None of the above 58. The maximum amount that a wife can inherit from her husband without owing any federal estate tax is A. $10,000. B. $600,000. C. $600,000 less excess gift tax. D. unlimited. E. None of the above 59. Individual Retirement Accounts (IRAs) have become very popular. The maximum annual IRA contribution per worker is $2,000 plus an additional $____________ for a non-working spouse. A. $200 B. $250 C. $1,000 D. $2,000 E. None of the above 60. The main difference between a joint tenancy and tenancy in common is A. the surviving joint tenant will eventually own all of the land as a result of right of survivorship. B. the surviving tenant in common will eventually own all the land as a result of right of survivorship. C. only husbands and wives may be joint tenants. D. tenants in common must own equal shares of the property while joint tenants may own unequal shares (i.e., H owns 1/4 and W owns 3/4). 61. If quantity purchased decreases by 10% when prices increases by 20%, then the elasticity of demand is A. 0.5 B. 2.0 C. 10 D. 20 E. None of the above 62. In order for limited partners to maintain their limited liability, they can not A. share in the profits of the limited partnership. B. own more than one-third of the limited partnership. C. participate in the management of the limited partnership. D. own more than 49.9% of the limited partnership. E. Both C and D. 63. You are considering the purchase of a combine, rather than continuing to hire a custom operator at $22.00 per acre. If you purchase the machine, the annual fixed costs (interest, depreciation, etc.) will be $12,000. The variable cost is $10 per acre including the extra labor. There would be no other changes in costs and returns associated with ownership and no savings other than the custom charges. How many acres must be harvested each year in order to justify (on a breakeven basis) purchase the combine? A. 500 B. 833.3 C. 1,000 D. 1,200 E. None of the above 64. A written agreement by which an owner of property transfers title to someone for the benefit of beneficiaries is a A. trust. B. partnership. C. corporation. D. sole proprietorship. E. estate. 65. The big advantage of renting a major asset as compared to purchasing is that renting A. reduces your income tax B. increases your depreciation C. releases capital for other uses D. improves output per worker E. costs less in the long run 66. Effective 1/1/94 a cancelled check is no longer adequate proof of a charitable contribution that is greater than A. $ 250 B. $ 1000 C. $ 5000 D. $ 10,000 E. None of the above 67. Farmer Jones has $10,000 in equipment he uses exclusively for corn. He assumes that this equipment will last 5 years and have a salvage value of $0. He plans to plant 120 acres of corn each year. Assuming an interest rate of 8%, what will be his average fixed costs per year for the next 5 years (depreciation and interest) for this machinery per acre of corn? A. $10 B. $20 C. $25 D. $30 E. None of the above 68. Effective for tax years beginning after 1992, the maximum amount that can be claimed as a section 179 expense deduction on your tax return has been changed to A. $5,000 B. $10,000 C. $15,000 D. $17,500 E. None of the above 69. A farmer traded a tractor with an adjusted tax basis of $5,000. The new tractor had a list price of $50,000. The dealer allowed a $20,000 trade-in for the old tractor. The farmer paid $10,000 of his own money and borrowed $20,000 to pay the balance. What is the tax basis of the new tractor? A. $15,000 B. $35,000 C. $45,000 D. $50,000 E. None of the above 70. How many pounds of 48% protein supplement must be mixed with 8% protein corn to make a ton of 14% protein feed? A. 300 pounds B. 400 pounds C. 550 pounds D. 600 pounds E. None of the above 71. Which of the following is the best measure for comparing the profitability of two farms? A. Debt/asset ratio B. Rate of return to equity capital C. Gross farm income D. Gross farm income minus capital gains 72. Farmer Brown had a grain bin which he will not replace totally destroyed in the 1993 flood. On his 1993 tax return he can A. deduct the replacement cost of a new bin. B. deduct the undepreciated basis of the destroyed bin. C. continue to depreciate the bin. D. take no deduction. E. None of the above 73. Individuals age 55 and over can exclude from income up to $________ of gain from the sale of their principal residence. A. $25,000 B. $50,000 C. $100,000 D. $125,000 E. None of the above 74. For depreciation, computers are classified as A. 3-year property B. 5-year property C. 7-year property D. 10-year property E. None of the above 75. Using comparable sales for the purpose of appraising farmland is called the A. inventory approach to appraising. B. earnings approach to appraising. C. market approach to appraising. D. cost approach to appraising. E. None of the above. 1995 MISSOURI YOUNG FARMERS ASSOCIATION FARM BUSINESS MANAGEMENT CONTEST Columbia, Missouri February 4, 1995 KEY 1. D 26. B 51. C 2. C 27. C 52. A 3. A 28. A 53. C 4. C 29. B 54. D 5. D 30. A 55. D 6. B 31. A 56. C 7. C 32. B 57. A 8. B 33. B 58. D 9. A 34. A 59. B 10. C 35. B 60. A 11. D 36. C 61. A 12. D 37. B 62. C 13. C 38. C 63. C 14. E 39. D 64. A 15. C 40. A 65. C 16. C 41. B 66. A 17. D 42. D 67. B 18. D 43. B 68. D 19. B 44. B 69. B 20. A 45. C 70. A 21. C 46. A 71. B 22. A 47. B 72. B 23. D 48. B 73. D 24. A 49. C 74. B 25. B 50. C 75. C