Chapter 14
The 5 Most Common Forms of Business Organizations for Farms and Ranches
Sole Proprietorship, partnership, corporation, LLC, Cooperative
A term used to describe situations in which the possible outcomes and the chances of each one occurring are unknown.
Risk
What is the assumed salvage value of an asset under the MACRS system
$0
Assets =
Liabilities + Owners Equity
Which accounting system is easier to understand for beginning producers
Cash Basis
The proper choice of organization depends on these factors.
size of the business, number of people involved, career stage and age of operators, and owner's desire to pass assets down to their heirs
When money is borrowed to finance the operations of the business
Financial Risk
If a tax year is the same as the calendar year, when must producers pay their taxes if they are not paid during the production period
March 1
Name the equation for straight line depreciation
Annual Depreciation = Purchase price - salvage value divided by useful life
Name the difference between current and non-current liabilities
current is due within a year, non-current is due in more than one year
Four Stages of the Life Cycle
entry, growth, consolidation, exit
The difference between the highest and lowest possible outcomes
Range
What is the useful life of new farm machinery and equipment under the MACRS depreciation system
5 years
equation for break even yield
Break even yield = Cost of production divided by Market Price
equation for break even price
Break even Price = Cost of production divided by expected Yield
The size of the sole proprietorship is limited by
capital available to a single owner
Reduce the variability of possible outcomes, set a minimum income or price level, maintaining flexibility of decision making, improve the risk-bearing ability of the business
Tools for managing risk
Explain depreciation’s role in tax management
Depreciation is a non-cash expense that reduces taxable income without a cash outflow
Name the equation for Marginal Value Product
MVP= change in total Revenue divided by change in inputs
Name to of the measures of liquidity used to analyze a businesses ability to pay current debts
current ratio and working capital
The two types of partnerships
general and limited
Provides protection against losses that might result from the untimely death of the farm operator or a member of the family
Life insurance
Name 4 of the 7 tax management Strategies
Form of business, Income Leveling, Income averaging, Tax credits, Deferring or postponing taxes, Net Operating loss, Tax-free exchanges
Name the 6 steps to creating a whole farm plan
Identify goals, Identify resource inventory, Identify enterprises and their budgets, identify gross margins, Identify best enterprise combinations, create a whole farm budget
Name the form of a partial budget and how it helps producers make management Decisions
Additional Costs + Reduced revenue on the left Reduced costs + Additional Revenue on the right, if Additional Costs + Reduced revenue < Reduced costs + Additional Revenue then the changes to an enterprise are more profitable than the original plan