1998 MISSOURI YOUNG FARMERS ASSOCIATION FARM BUSINESS MANAGEMENT CONTEST Osage Beach, Missouri February 21, 1998 Please place your answers in the appropriate box on the answer sheet provided. There is only one correct answer to each question. 1. In using the options market for soybeans, 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 2. 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 3. 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. 4. 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. 5. 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. 6. For tax year 1997, a self-employed individual may deduct _____% of his/her cost for health insurance. A. 0% B. 40% C. 50% D. 100% E. None of the above 7. 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 8. 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. 9. 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 10. 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 11. 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 12. 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 13. Corn has an expected yield of 110 bushels per acre and has a production cost of $140.00 per acre. Expected 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 $100 per acre. At what breakeven yield per acre would soybeans generate the same net return per acre as dryland corn? A. 33.7 bushels B. 37.6 bushels C. 44.0 bushels D. 50.4 bushels E. None of the above 14. 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. 15. 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 16. 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). 17. If quantity purchased decreases by 20% when prices increases by 10%, then the elasticity of demand is A. 0.5 B. 2.0 C. 10 D. 20 E. None of the above 18. 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. 19. 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 $12 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) purchasing the combine? A. 500 B. 833.3 C. 1,000 D. 1,200 E. None of the above 20. 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. 21. 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. 22. The Taxpayer Relief Act of 1997 reduced the maximum capital gains tax rate to _____% for items (other than collectibles) that are held more than 18 months. A. 28% B. 25% C. 20% D. 18% E. None of the above 23. 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 24. 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. 25. The cost of producing one additional unit of output is called: A. opportunity cost. B. substitution cost. C. average cost. D. marginal cost. E. None of the above 26. The role of price in a free market is to serve as a guide: A. in controlling quantity supplied. B. in limiting quantity demanded. C. in allocating consumption. D. in deciding what, when, and how much to produce. E. All of the above 27. If you buy a 55-pound feeder pig for 90› per pound and sell the same animal at 230 pounds for 45› per pound, your breakeven cost of production per pound is: A. 28.2› B. 30.5› C. 30.9› D. 36.2› E. None of the above 28. A highly leveraged business: A. is less susceptible to business risk. B. uses very little borrowed money. C. is very susceptible to financial risk. D. is one located at the edge of an earthquake zone. 29. A contract that gives the holder the right, but not the obligation, to sell at a specified price is a: A. futures contract. B. Put option. C. Call option. D. forward contract. E. All of the above 30. The specified price at which the option purchaser may buy or sell the commodity is the: A. strike price. B. Call price. C. Put price. D. option price. E. None of the above 31. A farmer has $150,000 of principal remaining on a mortgage at the end of this fiscal year. The annual principal payment is $15,000. Accrued interest at the end of the year amounts to $8,500. The year-end balance sheet will show: A. non-current liabilities of $158,500. B. current liabilities of $158,500. C. non-current liabilities of $150,000 and current liabilities of $8,500. D. non-current liabilities of $135,000 and current liabilities of $23,500. E. None of the above 32. A producer sells 12 feeder steers for $91/cwt. The average weight per steer is 538 pounds. There is a 2.5% sales commission and yardage fees of $2.30 per head. The net amount received for the pen of steers would be A. $5,847.36 B. $5,728.09 C. $5,700.49 D. $475.04 E. None of the above 33. For tax year 1997, the social security wage base is A. $17,500 B. $50,000 C. $62,700 D. $65,400 E. None of the above 34. A feedlot operator buys feeder steers, finishes them, and sells them. The operator estimates that finished steers will sell for $66 per cwt. and that it will cost $150 per head to bring them from the 780 pound purchase weight to the 1100 pound selling weight. What is the breakeven price the operator can pay for 780 pound feeder steers? A. $93.08/cwt. B. $78.15/cwt. C. $73.85/cwt. D. $52.36/cwt. E. None of the above 35. What will the breakeven bid price for 780 pound feeder steers be in the above question if high priced corn causes feeding costs to increase to $180 per head? A. $520 per head. B. $73.48/cwt. C. $70.00/cwt. D. $51.18/cwt. E. None of the above 36. A soybean producer decides to store his soybeans in the local elevator for three months. The price at harvest is $6.50 per bushel and the elevator charges 2› per bushel per month for storage plus a 5› per bushel handling charge. He has 5,000 bushels to sell and must borrow $32,500 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. $6.61 B. $6.76 C. $6.81 D. $6.83 E. None of the above 37. 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. Sell 5,000 bushels of corn right now D. Put up a $15,000 pole barn this year E. Buy $15,000 worth of fertilizer for the next crop year 38. A $80,000 loan amortized at 9% interest for 10 years yields annual payments of $12,465.60. How much of the first year's payment is principal? A. $3,465.60 B. $5,085.00 C. $5,265.60 D. $7,200.00 E. None of the above 39. For the above loan of $80,000, if the 10th and final payment includes $1,029.27 of interest, what was the outstanding principal balance after the 9th payment? A. $13,494.87 B. $11,436.33 C. $11,219.04 D. $9,102.93 E. None of the above 40. For the above loan of $80,000, how much total interest is paid over the life of the loan? A. $124,656 B. $72,000 C. $44,656 D. $7,200 E. None of the above 41. 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. E. None of the above 42. 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 43. A record keeping system which records both the addition to equipment and the reduction of cash when an asset is purchased is called A. an income statement. B. dual effect. C. a balance sheet. D. double entry. E. None of the above 44. In 1997, Pat Parker had net farm income of $28,000. Pat had total business assets of $760,000 and total liabilities of $390,000. Pat paid $32,800 in interest. Rate of return on equity for 1997 would be A. 3.3% B. 4.3% C. 7.6% D. 14.1% E. None of the above 45. If alfalfa haylage as fed contains 58% moisture and 6.5% protein, the dry matter would be what percent protein? A. 3.77 B. 6.50 C. 11.21 D. 15.48 E. None of the above 46. A farmer purchases 600-pound feeder steers for 78› per pound and plans to sell the steers at 850 pounds. The farmer estimates the total cost of gain to be 60› per pound. The nearest breakeven price when the steers are sold at 850 pounds is A. 69.00›/pound B. 69.18›/pound C. 72.71›/pound D. 73.50›/pound E. None of the above 47. The main difference between cash and accrual accounting is that accrual accounting includes A. a charge for unpaid family labor. B. depreciation. C. an adjustment for changes in inventory. D. sales of assets. E. None of the above 48. A farmer has total assets of $510,000 of which land is $300,000. The farmer's debt:equity ratio is 0.5. What will the farmer's debt:equity ratio be if the value of land inflates by 10%? A. 0.575 B. 0.465 C. 0.459 D. 0.400 E. None of the above 49. A $1 deductible expense (before tax) will cost ______ after tax if the farmer's marginal tax rate is 40%. A. $0.00 B. $0.40 C. $0.60 D. $1.00 E. None of the above 50. For 1997, the self-employment tax rate for Medicare is A. 2.90%. B. 7.65%. C. 15.30%. D. 25.00%. E. None of the above 51. On March 1, 1997, Lynn borrowed $25,000 to buy seed and fertilizer. On December 1, 1997, she repaid the $25,000 along with $1828.12 interest. What annual interest rate did she pay? A. 9.20% B. 9.75% C. 10.50% D. 11.75% E. None of the above 52. The Chicago Mercantile Exchange has changed its hog futures contract from a delivery system to a cash settlement system. The reason for this change was to A. improve convergence. B. prevent convergence. C. comply with CFTC regulations. D. reduce Exchange paperwork. E. None of the above 53. A farmer is purchasing a new baler at a cost of $24,000. His dealer will finance the baler under the following terms: 20% down payment with the balance repaid in equal payments over the next five years at 9% APR. The farmer expects the baler to last for 10 years and have a salvage value of $4,000. How much interest will the farmer pay the first year of the loan? A. $1,728 B. $1,944 C. $2,160 D. $2,400 E. None of the above 54. A farmer has a debt:worth ratio of 2:1. The current liabilities total $50,000 and the non-current liabilities total $110,000. What is the value of the assets? A. $240,000 B. $210,000 C. $160,000 D. $80,000 E. None of the above 55. A cattle feeding operation has sales of $88,000, feed purchases of $40,000, other costs of $30,000, an opening inventory of $40,000, and a closing inventory of $32,000. What is the net farm income for this operation on an accrual basis? A. $2,000 B. $10,000 C. $18,000 D. $20,000 E. None of the above 56. The tax you owe on each additional dollar of taxable income is called the A. Section 179 deduction. B. straight-line tax rate. C. marginal tax rate. D. federal adjusted taxable income. E. None of the above 57. A feedlot operator purchases a pen of 125 feeder steers with an average weight of 788 pounds and sells them at an average weight of 1041 pounds. Total feed cost for the pen is $16,420. Feed cost per pound of gain is equal to A. $0.440 B. $0.519 C. $0.649 D. $0.720 E. None of the above 58. A farmer should issue an IRS Form 1099 for which of the following? A. $750 paid to a neighbor for hay. B. $500 paid to a neighbor for custom work. C. $1500 paid to a neighbor for a bull. D. $650 paid to a neighbor for land rent. E. All of the above 59. When required, you must send an IRS Form 1099-MISC to the individual paid by A. December 31. B. January 31. C. March 1. D. April 15. E. 90 days after payment. 60. Which of the following is considered Schedule F farm income? A. Cull breeding stock B. Crop sales C. Sales of farm equipment D. Sale of land E. All of the above 61. How many total acres are included in "SE 1/4 of NE 1/4 and SE 1/4 of Section 15, Twp. 10N, R4W of the 5th Principle Meridian"? A. 80 acres B. 120 acres C. 160 acres D. 200 acres E. None of the above 62. How much perimeter fence would be required to completely enclose the parcel of land described in question 61? A. 1.5 miles B. 2.0 miles C. 2.5 miles D. 3.0 miles E. None of the above 63. 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. 64. A Subchapter S corporation can have no more than A. 10 shareholders. B. 15 shareholders. C. 35 shareholders. D. 75 shareholders. E. There is no limit on number of shareholders. 65. An LLC (Limited Liability Company) is usually A. taxed like a corporation. B. taxed like a partnership. C. not for profit and therefore not taxed. D. illegal in Missouri. E. None of the above 66. The IRS form used to calculate self-employment tax is A. Schedule D. B. Form 4797. C. Form 4562. D. Schedule SE 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. The maximum amount that can be claimed as a Section 179 expense deduction on your 1997 tax return is A. $15,000 B. $17,500 C. $18,000 D. $18,500 E. None of the above 69. A farmer traded a tractor with an adjusted tax basis of $15,000. 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. $45,000 C. $50,000 D. $65,000 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. As the price of nitrogen fertilizer increases relative to the price of corn, the most profitable level of fertilization most likely: A. increases. B. stays the same. C. decreases. D. becomes negative. 72. Use of enterprise budgets for estimating total costs and returns for a farm enterprise assumes ____________ returns to scale. A. decreasing B. constant C. increasing D. negative 73. Some resources used in farming are valued at their "opportunity cost." This is the amount that: A. the farmer paid to buy the resource initially. B. the farmer pays to rent the resource each year. C. is added to net profit as a result of using the resource. D. the resource could earn if it were used elsewhere, either within or outside the farm business. 74. Production of flax yields straw for bedding as well as grain for linseed oil. Production of sheep yields mutton and wool. These products are referred to as: A. supplementary. B. complementary. C. competitive. D. joint products. E. None of the above 75. A farmer is solvent if: A. he has sufficient current assets to cover current debts. B. he has sufficient equity to cover current debts. C. he has sufficient assets to cover all debts. D. he can pay all debts with all equity. E. All of the above 1998 MISSOURI YOUNG FARMERS ASSOCIATION FARM BUSINESS MANAGEMENT CONTEST Osage Beach, Missouri February 21, 1998 KEY 1. C 21. C 41. C 61. D 2. A 22. C 42. A 62. C 3. E 23. B 43. D 63. B 4. D 24. C 44. C 64. D 5. B 25. D 45. D 65. B 6. B 26. E 46. C 66. D 7. A 27. C 47. C 67. B 8. B 28. C 48. C 68. C 9. B 29. B 49. C 69. B 10. A 30. A 50. A 70. A 11. C 31. D 51. B 71. C 12. D 32. C 52. A 72. B 13. B 33. D 53. A 73. D 14. C 34. C 54. A 74. D 15. D 35. C 55. B 75. C 16. A 36. B 56. C 17. B 37. E 57. B 18. C 38. C 58. D 19. D 39. B 59. B 20. A 40. C 60. B