AGRIBUSINESS FINAL EXAM 2024 QUESTIONS AND CORRECT ANSWERS The essence of managerial expectations is found in what is called basic accounting ARTS (ARTS is the acronym that we want to centralize our thinking around) ---------- CORR ECT ANSWER: - Accurate (needs to be spot on) - Relevant (you need all the categories possible) - Timely (you want to have statements that you can review often and be with updated informa tion) - Simple (balance between relevant and simple = accounting process for managers difficult; simple means it has to be relevant) Equation that creditors use: ---------- CORRECT ANSWER: Assets = Liabilities + Owner's equity Equation that owners use: ---------- CORRECT ANSWER: Owner's equity = Assets - Liabilities The first people to be paid are the: (entitled to the first claim) ---------- CORRECT ANSWER: Creditors The rest that is left whenever the creditors are paid (balance) is the: ---------- CORRECT ANSWER: Owner's Equity If liabilities exceed assets (look at the creditor's equation), that shouldn't be possible. But think about a sole proprietorship, the busines s and owner are not separated. Things makes the owner's equity negative ( -). This makes the firm: ---------- CORRECT ANSWER: Insolvent (unable to pay debts) and they could file for bankruptcy Goods owned by the company ---------- CORRECT ANSWER: Assets Assets can be broken into two categories: ---------- CORRECT ANSWER: 1. Tangible (real estate, inventory) 2. Intangible (intellectual property) [Assets] Someone buys something from you and they haven't paid for it yet ----------
CORRECT ANSWER: Accounts Receiv able Assets are either classified as either: ---------- CORRECT ANSWER: 1. Current (either cash or an item that will become cash within the accounting period) 2. Fixed (something the firm owns or uses that will **NOT** turn into cash within the next accoun ting period) (Example he shows on board, not in notes) Assets = Liabilities + O.E. Let's say you get a 1,000,000 loan for land Land: $1,000,000 Long -Term Loans: $1,000,000 ---------- CORRECT AN SWER: When you add both together, that equation still balances That's the case because you are the OWNER of that land and only works if you are making the payments. If you were to rent something, you don't have ownership of that thing. Meanwhile, in this example, you have ownership. Obligations to pay a debt ---------- CORRECT ANSWER: Liabilities Must be paid within 1 year - Accounts payable - Taxes payable ---------- CORRECT ANSWER: Current Liabilities Obligations that are due after 1 year - Long -term notes (loans) - Contracts ---------- CORRECT ANSWER: Long -term Liabilities Refers to the speed and ease with which assets can be converted to cash ---------- CORRECT ANSWER: Liquidity Liquidity has two components: ---------- CORRECT ANSWER: 1. Ease of Conversion 2. Loss of Value Any assets can be converted to cash if _____________________________. So a highly liquid asset can be sold quickly without a significant loss of value ----------
CORRECT ANSWER: The price is dropped enough An ______________ cannot be quickly conv erted to cash without a substantial price reduction --
-------- CORRECT ANSWER: Illiquid Asset The more liquid a business is: ---------- CORRECT ANSWER: The less likely it is to experience financial distress Estimate of the value of the firm that would be t ransferred to owners if all liabilities were repaid. If the business were to shut down, you have to pay the creditors first. Once you pay them back, then the rest is what you should have. ---------- CORRECT ANSWER: Owner's Equity (Net Worth)
CORRECT ANSWER: Accounts Receiv able Assets are either classified as either: ---------- CORRECT ANSWER: 1. Current (either cash or an item that will become cash within the accounting period) 2. Fixed (something the firm owns or uses that will **NOT** turn into cash within the next accoun ting period) (Example he shows on board, not in notes) Assets = Liabilities + O.E. Let's say you get a 1,000,000 loan for land Land: $1,000,000 Long -Term Loans: $1,000,000 ---------- CORRECT AN SWER: When you add both together, that equation still balances That's the case because you are the OWNER of that land and only works if you are making the payments. If you were to rent something, you don't have ownership of that thing. Meanwhile, in this example, you have ownership. Obligations to pay a debt ---------- CORRECT ANSWER: Liabilities Must be paid within 1 year - Accounts payable - Taxes payable ---------- CORRECT ANSWER: Current Liabilities Obligations that are due after 1 year - Long -term notes (loans) - Contracts ---------- CORRECT ANSWER: Long -term Liabilities Refers to the speed and ease with which assets can be converted to cash ---------- CORRECT ANSWER: Liquidity Liquidity has two components: ---------- CORRECT ANSWER: 1. Ease of Conversion 2. Loss of Value Any assets can be converted to cash if _____________________________. So a highly liquid asset can be sold quickly without a significant loss of value ----------
CORRECT ANSWER: The price is dropped enough An ______________ cannot be quickly conv erted to cash without a substantial price reduction --
-------- CORRECT ANSWER: Illiquid Asset The more liquid a business is: ---------- CORRECT ANSWER: The less likely it is to experience financial distress Estimate of the value of the firm that would be t ransferred to owners if all liabilities were repaid. If the business were to shut down, you have to pay the creditors first. Once you pay them back, then the rest is what you should have. ---------- CORRECT ANSWER: Owner's Equity (Net Worth)
