Farm Management Midterm Exam Questions with Correct Answers Latest Update 2025/2026
Net Worth - Answers The value of the business after all assets are liquidated and all financial
obligations are paid.
Owner's Equity - Answers Another term for Net Worth, representing the owner's stake in the
business.
Assets - Answers Everything that is owned by the business.
Liabilities - Answers Everything that is owed by the business.
Balance Sheet - Answers The formal accounting statement that summarizes a firm's financial
position at a specific point in time.
Total Assets - Answers The sum of all assets owned by the business.
Total Liabilities - Answers The sum of all financial obligations owed by the business.
Total Current Assets - Answers The sum of all current assets, which includes cash, accounts
receivable, and inventory.
Total Current Liabilities - Answers The sum of all current liabilities, which includes accounts
payable and accrued interest.
Current Assets - Answers Assets that are expected to be converted into cash or used up within
one year.
Current Liabilities - Answers Obligations that are expected to be settled within one year.
Noncurrent Assets - Answers Assets that are not expected to be converted into cash within one
year.
Noncurrent Liabilities - Answers Obligations that are due beyond one year.
Total Noncurrent Assets - Answers The sum of all noncurrent assets owned by the business.
Total Noncurrent Liabilities - Answers The sum of all noncurrent liabilities owed by the business.
Net Worth Calculation - Answers Total Assets - Total Liabilities = Net Worth.
Profitability - Answers Measure of a firm's ability to generate income.
Liquidity - Answers Ability of a firm to meet short-term obligations.
Solvency - Answers The ability of a firm to pay off all financial obligations if all assets were sold.
Debt to Asset Ratio - Answers Debt to Asset Ratio = Total Liabilities ÷ Total Assets (<1 implies
firm is Solvent; closer to zero, more Solvent)
, Leverage Ratio - Answers Leverage Ratio = Total Liabilities ÷ Net Worth (>0 implies firm is
Solvent, though smaller is MORE solvent)
Debt to Asset Ratio Calculation - Answers Debt to Asset Ratio = 64,820 ÷ 160,450 = 0.404 (<1
therefore 'solvent')
Leverage Ratio Calculation - Answers Leverage Ratio = 64,820 ÷ 95,630 = 0.678 (>0 therefore
'solvent')
Current vs. Noncurrent Assets - Answers Current Assets are generally sold/consumed/used
within 1 year; Noncurrent Assets are otherwise.
Current vs. Noncurrent Liabilities - Answers Current Liabilities are due and payable within 1 year;
Noncurrent Liabilities are due beyond 1 year.
Debt to Asset Ratio Example - Answers If the Debt to Asset Ratio of a firm is 0.75, then
Leverage Ratio = = 3.0
Working Capital - Answers Working Capital = Current Assets - Current Liabilities (>0 implies firm
is Liquid, larger is more Liquid)
Current Ratio - Answers Current Ratio = Current Assets ÷ Current Liabilities (>1 implies firm is
Liquid; larger is more Liquid)
Cost Basis - Answers Assets are valued at what they originally cost less any depreciation
claimed.
Market Basis - Answers Assets are valued at their 'fair market value' less estimated selling
costs.
Accrued Expenses - Answers Expenses that have been incurred but not yet paid, including
interest and taxes.
Principal on short-term loans - Answers The amount of money borrowed that is due within one
year.
Principal portion of term loans - Answers The outstanding principal balance of loans that is not
due to be paid until after one year.
Marketable stocks and bonds - Answers Financial instruments that can be easily sold in the
market.
Inventories of products for sale - Answers Goods held by a firm for the purpose of selling them.
Inventories of inputs - Answers Supplies and materials that are used in the production of goods.
Prepaid Expenses - Answers Payments made in advance for goods or services to be received in
Net Worth - Answers The value of the business after all assets are liquidated and all financial
obligations are paid.
Owner's Equity - Answers Another term for Net Worth, representing the owner's stake in the
business.
Assets - Answers Everything that is owned by the business.
Liabilities - Answers Everything that is owed by the business.
Balance Sheet - Answers The formal accounting statement that summarizes a firm's financial
position at a specific point in time.
Total Assets - Answers The sum of all assets owned by the business.
Total Liabilities - Answers The sum of all financial obligations owed by the business.
Total Current Assets - Answers The sum of all current assets, which includes cash, accounts
receivable, and inventory.
Total Current Liabilities - Answers The sum of all current liabilities, which includes accounts
payable and accrued interest.
Current Assets - Answers Assets that are expected to be converted into cash or used up within
one year.
Current Liabilities - Answers Obligations that are expected to be settled within one year.
Noncurrent Assets - Answers Assets that are not expected to be converted into cash within one
year.
Noncurrent Liabilities - Answers Obligations that are due beyond one year.
Total Noncurrent Assets - Answers The sum of all noncurrent assets owned by the business.
Total Noncurrent Liabilities - Answers The sum of all noncurrent liabilities owed by the business.
Net Worth Calculation - Answers Total Assets - Total Liabilities = Net Worth.
Profitability - Answers Measure of a firm's ability to generate income.
Liquidity - Answers Ability of a firm to meet short-term obligations.
Solvency - Answers The ability of a firm to pay off all financial obligations if all assets were sold.
Debt to Asset Ratio - Answers Debt to Asset Ratio = Total Liabilities ÷ Total Assets (<1 implies
firm is Solvent; closer to zero, more Solvent)
, Leverage Ratio - Answers Leverage Ratio = Total Liabilities ÷ Net Worth (>0 implies firm is
Solvent, though smaller is MORE solvent)
Debt to Asset Ratio Calculation - Answers Debt to Asset Ratio = 64,820 ÷ 160,450 = 0.404 (<1
therefore 'solvent')
Leverage Ratio Calculation - Answers Leverage Ratio = 64,820 ÷ 95,630 = 0.678 (>0 therefore
'solvent')
Current vs. Noncurrent Assets - Answers Current Assets are generally sold/consumed/used
within 1 year; Noncurrent Assets are otherwise.
Current vs. Noncurrent Liabilities - Answers Current Liabilities are due and payable within 1 year;
Noncurrent Liabilities are due beyond 1 year.
Debt to Asset Ratio Example - Answers If the Debt to Asset Ratio of a firm is 0.75, then
Leverage Ratio = = 3.0
Working Capital - Answers Working Capital = Current Assets - Current Liabilities (>0 implies firm
is Liquid, larger is more Liquid)
Current Ratio - Answers Current Ratio = Current Assets ÷ Current Liabilities (>1 implies firm is
Liquid; larger is more Liquid)
Cost Basis - Answers Assets are valued at what they originally cost less any depreciation
claimed.
Market Basis - Answers Assets are valued at their 'fair market value' less estimated selling
costs.
Accrued Expenses - Answers Expenses that have been incurred but not yet paid, including
interest and taxes.
Principal on short-term loans - Answers The amount of money borrowed that is due within one
year.
Principal portion of term loans - Answers The outstanding principal balance of loans that is not
due to be paid until after one year.
Marketable stocks and bonds - Answers Financial instruments that can be easily sold in the
market.
Inventories of products for sale - Answers Goods held by a firm for the purpose of selling them.
Inventories of inputs - Answers Supplies and materials that are used in the production of goods.
Prepaid Expenses - Answers Payments made in advance for goods or services to be received in
