Farm and Ranch management, exam 2
well answered
What is a liquid asset? - correct answer ✔✔goods that have already been produced (such as
grain and feeder livestock, that can be sold quickly and easily without disrupting future
production activities)
What is an Illiquid asset? - correct answer ✔✔Assets that cannot be sold easily that do impact
the farm's future ability to produce income (such as land, machinery, and breeding livestock)
What is a current asset? - correct answer ✔✔Assets that are more liquid , which will typically be
either used or sold within the next year as part of the normal business activities (examples
include: cash on hand, checking and savings account balances [most liquid assets]: also included
are corporate stock, cash value of life insurance)
What are non current assets? - correct answer ✔✔anything that is not a current asset (ex.
machinery, equipment, breeding livestock, fences and corrals, buildings, and land, shares of
stock owned in cooperatives or other businesses closely related to farming or ranching)
What are current liabilities? - correct answer ✔✔Financial obligations that will become due and
payable within 1 year from the date of the balance sheets and will therefore require that cash
be available in these amounts within the next year (examples: accounts payable at farm supply
stores for goods and services, short term loans, operating loans)
What are noncurrent liabilities? - correct answer ✔✔They include all obligations that do not
have to be paid in full within the next year (any principal due within the next year would be
shown as a current liability, and the remaining balance on the debt would be listed as a
noncurrent liability)
, What is owner equity? - correct answer ✔✔Also known as net worth, it is the amount that
would be left for the business owner if the business was sold right now.
What are Intermediate assets? - correct answer ✔✔assets that are less liquid than current
assets, with a life greater than 1 year but less than about 10 years (examples: machinery
equipment, perennial crops, and breeding livestock)
What are fixed assets? - correct answer ✔✔They are the least liquid and have a life greater than
10 years (examples: land and buildings)
What are the 5 ways to value an asset? - correct answer ✔✔1.) Market value (its current market
price)
2.) Cost value (the price at which an item was purchased)
3.) Farm production cost (equal to the accumulated costs of producing the item)
4.) Cost less accumulated depreciation (self-explanatory)
5.) lower of cost or market value (choose whichever value is smaller : market vs cost)
Keep in mind: be conservative and consistent
What are the advantages to a cost basis balance sheet vs a market basis balance sheet? - correct
answer ✔✔they are conservative, conform, and directly comparable with balance sheets from
other types of businesses using cost basis
What are the advantages to a market basis balance sheet vs a cost basis balance sheet? - correct
answer ✔✔more accurate indication of the current financial condition of the business and the
value of collateral available which can be used to secure loans
well answered
What is a liquid asset? - correct answer ✔✔goods that have already been produced (such as
grain and feeder livestock, that can be sold quickly and easily without disrupting future
production activities)
What is an Illiquid asset? - correct answer ✔✔Assets that cannot be sold easily that do impact
the farm's future ability to produce income (such as land, machinery, and breeding livestock)
What is a current asset? - correct answer ✔✔Assets that are more liquid , which will typically be
either used or sold within the next year as part of the normal business activities (examples
include: cash on hand, checking and savings account balances [most liquid assets]: also included
are corporate stock, cash value of life insurance)
What are non current assets? - correct answer ✔✔anything that is not a current asset (ex.
machinery, equipment, breeding livestock, fences and corrals, buildings, and land, shares of
stock owned in cooperatives or other businesses closely related to farming or ranching)
What are current liabilities? - correct answer ✔✔Financial obligations that will become due and
payable within 1 year from the date of the balance sheets and will therefore require that cash
be available in these amounts within the next year (examples: accounts payable at farm supply
stores for goods and services, short term loans, operating loans)
What are noncurrent liabilities? - correct answer ✔✔They include all obligations that do not
have to be paid in full within the next year (any principal due within the next year would be
shown as a current liability, and the remaining balance on the debt would be listed as a
noncurrent liability)
, What is owner equity? - correct answer ✔✔Also known as net worth, it is the amount that
would be left for the business owner if the business was sold right now.
What are Intermediate assets? - correct answer ✔✔assets that are less liquid than current
assets, with a life greater than 1 year but less than about 10 years (examples: machinery
equipment, perennial crops, and breeding livestock)
What are fixed assets? - correct answer ✔✔They are the least liquid and have a life greater than
10 years (examples: land and buildings)
What are the 5 ways to value an asset? - correct answer ✔✔1.) Market value (its current market
price)
2.) Cost value (the price at which an item was purchased)
3.) Farm production cost (equal to the accumulated costs of producing the item)
4.) Cost less accumulated depreciation (self-explanatory)
5.) lower of cost or market value (choose whichever value is smaller : market vs cost)
Keep in mind: be conservative and consistent
What are the advantages to a cost basis balance sheet vs a market basis balance sheet? - correct
answer ✔✔they are conservative, conform, and directly comparable with balance sheets from
other types of businesses using cost basis
What are the advantages to a market basis balance sheet vs a cost basis balance sheet? - correct
answer ✔✔more accurate indication of the current financial condition of the business and the
value of collateral available which can be used to secure loans
