1999 MISSOURI YOUNG FARMERS ASSOCIATION FARM BUSINESS MANAGEMENT CONTEST Osage Beach, Missouri February 6, 1999 Please place your answers in the appropriate box on the answer sheet provided. There is only one correct answer to each question. 1. 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 2. 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. 3. 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. 4. For tax year 1998, a self-employed individual may deduct _____% of his/her cost for health insurance. A. 40% B. 45% C. 50% D. 100% E. None of the above 5. 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. 6. 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 7. 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 8. 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 9. Corn has an expected yield of 110 bushels per acre and has a production cost of $140.00 per acre. Expected harvest prices are $2.00 per bushel for corn and $5.00 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. 36.0 bushels C. 44.0 bushels D. 50.4 bushels E. None of the above 10. 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. 11. 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 12. 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. 13. 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 $20,000. 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. 833.3 B. 1,000 C. 1,200 D. 2,000 E. None of the above 14. 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. 15. 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. 16. 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 17. 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 18. 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. 19. 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 20. 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 21. If you buy a 35-pound feeder pig for 90› per pound and sell the same animal at 265 pounds for 45› per pound, your breakeven cost of production per pound is: A. 30.5› B. 30.9› C. 36.2› D. 38.2› E. None of the above 22. 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. 23. 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 24. 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 25. 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 26. A producer sells 21 feeder steers for $85/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. $443.57 B. $9,314.92 C. $9,316.12 D. $9,555.00 E. None of the above 27. For tax year 1998, the social security wage base is A. $50,000 B. $62,700 C. $65,400 D. $68,400 E. None of the above 28. 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 $185 per head to bring them from the 750 pound purchase weight to the 1100 pound selling weight. What is the breakeven price the operator can pay for 750 pound feeder steers? A. $72.13/cwt. B. $73.85/cwt. C. $78.15/cwt. D. $93.08/cwt. E. None of the above 29. A soybean producer decides to store his soybeans in the local elevator for four months. The price at harvest is $5.25 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 $26,000 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. $5.54 B. $5.49 C. $5.48 D. $5.45 E. None of the above 30. 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 31. 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 32. 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 33. A farmer purchases 525-pound feeder steers for 82› per pound and plans to sell the steers at 750 pounds. The farmer estimates the total cost of gain to be 60› per pound. The nearest breakeven price when the steers are sold at 750 pounds is A. 69.00¢/pound B. 69.18¢/pound C. 72.71¢/pound D. 75.40¢/pound E. None of the above 34. 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 35. 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 36. For 1998, 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 37. 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 38. 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 39. 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 40. 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 41. 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 42. 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. 43. 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 44. How many total acres are included in "E 1/2 of SW 1/4 and S 1/2 of the NW 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 45. How much perimeter fence would be required to completely enclose the parcel of land described in the previous question? A. 1.5 miles B. 2.0 miles C. 2.5 miles D. 3.0 miles E. None of the above 46. 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. 47. 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 48. 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 49. The maximum amount that can be claimed as a Section 179 expense deduction on your 1998 tax return is A. $15,000 B. $17,500 C. $18,000 D. $18,500 E. None of the above 50. 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 51. How many pounds of 48% protein supplement must be mixed with 10% protein wheat to make a ton of 15% protein feed? A. 263 pounds B. 330 pounds C. 410 pounds D. 550 pounds E. None of the above 52. 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 53. 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. 54. 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 55. 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 56. If high oil corn has the same production cost per acre as regular corn but can be sold for 25› per bushel more, what yield of high oil corn is needed to equal 125 bushels of regular corn at $2.40 per bushel? A. 109.1 bushels B. 113.2 bushels C. 117.5 bushels D. 120.7 bushels E. None of the above 57. How many acres are in a section of land? A. 40 acres B. 160 acres C. 640 acres D. 1,000 acres E. None of the above 58. A township is six miles square and includes A. 6 sections. B. 36 sections. C. 40 sections. D. 160 sections. E. None of the above 59. If a farmer purchased land for $160,000, has a loan of $100,000 remaining on the land, and the market value of the land is $200,000, the book value of the land on the balance sheet will be A. $40,000. B. $60,000. C. $100,000. D. $160,000 less any accumulated depreciation. E. None of the above 60. The best measure of a firm's ability to make a short- term loan payment is A. debt/asset ratio. B. solvency ratio. C. current ratio. D. leverage ratio. E. net capital ratio. 61. A constant payment loan with payments consisting of principal and interest is called A. an amortized loan. B. a complementary loan. C. a discounted loan. D. a fixed rate loan. E. a capital loan. 62. Net worth is a measure of A. managerial ability. B. financial position. C. profitability. D. liquidity. E. All of the above 63. A cattle feeding operation has sales of $730,000, feed purchases of $300,000, other costs of $400,000, an opening inventory of $380,000, and a closing inventory of $400,000. What is the net farm income for this operation on an accrual basis? A. $10,000 B. $30,000 C. $50,000 D. $730,000 E. None of the above 64. If corn silage as fed contains 65% moisture and 2.3% protein, the dry matter would be what percent protein? A. 2.80 B. 3.08 C. 6.57 D. 8.00 E. None of the above 65. On March 1, 1998, Kate borrowed $25,000 to plant corn. On December 1, 1998, she repaid the $25,000 along with $1,734.37 interest. What annual interest rate did she pay? A. 8.50% B. 9.25% C. 9.75% D. 10.50% E. None of the above 66. To consider the time value of money in analyzing alternative farm investments, one should choose the investment with the A. highest net present value. B. largest net cash flow over the lifetime of the investment. C. highest average profits over the investment lifetime. D. lowest cost. E. None of the above 67. A $50,000 loan amortized at 8% interest for 20 years yields annual payments of $5,092.61. How much of the first year's payment is principal? A. $1,092.61 B. $1,700.00 C. $2,592.61 D. $4,000.00 E. None of the above 68. For the above loan of $50,000, how much total interest is paid over the life of the loan? A. $101,852.20 B. $51,852.20 C. $43,000.00 D. $7,544.60 E. None of the above 69. A feedlot operator purchases a pen of 100 feeder steers with an average weight of 788 pounds and sells them at an average weight of 1081 pounds. Total feed cost for the pen is $15,090. Feed cost per pound of gain is equal to A. $0.440 B. $0.515 C. $0.649 D. $0.720 E. None of the above 70. Livestock, stored grain, land, and personal property used to secure a loan are A. collateral. B. inventory. C. liabilities. D. net worth. E. Illiquid. 71. The main reason for hedging is A. to make more profit. B. to insure against a production loss. C. to reduce the price risk associated with producing or storing a cash commodity. D. to take an opposite position from the speculator. E. None of the above 72. Cooperatives pay patronage refunds according to A. one man, one vote. B. size of farm. C. amount of business done by patron. D. total assets. E. All of the above Farmer Douglas will buy 600 pound steers in late October. He will have to pay $80 per hundredweight for the 600 pound steers. Expected annual prices for 1050 pound steers is $70 per cwt. However, there is normally seasonal variation in fed cattle prices. The monthly price indexes for slaughter steers are: Index Index January 102 July 96 February 103 August 97 March 104 September 98 April 103 October 99 May 100 November 101 June 97 December 100 73. What price for 1050 pound steers can Mr. Douglas expect for an April selling date? A. $67.96 per cwt. B. $70.00 per cwt. C. $71.03 per cwt. D. $72.10 per cwt. E. None of the above 74. What price can Mr. Douglas expect for a May selling date? A. $67.96 per cwt. B. $70.00 per cwt. C. $71.03 per cwt. D. $72.10 per cwt. E. None of the above 75. Assuming an April selling date and all costs (excluding purchase of the feeder steers) totals $200 per head, Mr. Douglas can expect a profit of A. less than $0 (he would lose money). B. $0 - $49.99 per head. C. $50 - $99.99 per head. D. $100 - $149 per head. E. over $150 per head. --------------------------------------------------------------------- 1999 MISSOURI YOUNG FARMERS ASSOCIATION FARM BUSINESS MANAGEMENT CONTEST Osage Beach, Missouri February 6, 1999 KEY 1. A 21. D 41. D 61. A 2. D 22. C 42. B 61. B 3. B 23. B 43. B 63. C 4. B 24. A 44. C 64. C 5. B 25. D 45. C 65. B 6. B 26. B 46. B 66. A 7. A 27. D 47. B 67. A 8. C 28. A 48. D 68. B 9. B 29. A 49. D 69. B 10. C 30. C 50. B 70. A 11. D 31. D 51. A 71. C 12. C 32. C 52. B 72. C 13. D 33. D 53. D 73. D 14. A 34. C 54. D 74. B 15. C 35. C 55. C 75. C 16. C 36. A 56. B 17. B 37. A 57. C 18. C 38. A 58. B 19. D 39 C 59. D 20. E 40. B 60. C