Check Your Work Farm Business Planning – Lesson 4

A Project Funded by: USDA BFRDP Grant # Development Partners Include: Mississippi State University National Association of Agricultural Educators Oklahoma State University Agricultural Economics Department Oklahoma Cooperative Extension Service

The following slides provide the answers for the practice problems for Lesson 4. Activity 1 – Practice What You Learned.

Enterprise Budgets and Analysis

Annual Cash Flow Budget Form Sources of cash Beginning Cash Balance$22,000 Crop Sales - Livestock Sales $300,000 Sale of Depreciable Assets - Sale of Land - Proceeds from Planned Borrowing $102,500 Other Sources of Cash (e.g., contributed capital) - Total Sources of Cash $424,500 Uses of Cash Cash Expenses (excluding interest paid) $102,500 Breeding Stock Purchases - Purchase of Other Depreciable Assets - Purchases of Land - Principal Payments $15,500 Interest Payments on Long-Term Debt $19,800 Operating Note Repayment $102,500 Interest on Operating Note $3,844 Other Uses of Cash - Total Uses of Cash $244,144 Net Cash Surplus or Deficit $180,356

Balance Sheets

Is the operation solvent? Is it liquid? Explain. The operation is projected to be both solvent and liquid. Current assets exceed current liabilities by over 380% proving liquidity. The D/A and D/E ratios are low while the E/A ratio is high, proving solvency.

Balance Sheets Current assetsCurrent liabilities Cash $43,000 Current Portion of Work Truck Note $7,150 Cash Invested in Building $85,000 Operating Interest Payable Current Portion of Land Debt $22,000 Interest Payable$4,350 Total current assets$128,000Total current liabilities$33,500 Non-current assetsNon-current liabilities Land$260,000 Long-Term portion of Land Debt $168,000 Work Truck$51,000 Long-Term portion of Work Truck Note $16,000 Machinery and Equipment $350,000 Total non-current liabilities $184,000 Total non-current assets $661,000Total liabilities$217,500 Total assets$789,000Owner’s equity$571,500 Total liabilities + Owner’s equity $789,000

Find the missing variables of the balance sheet by using the following information A.$12,600 Total CL – (Current Portion of Long Term Debt + Interest Payable) B.$71,300 Working Capital + Total Current Liabilities C.$33,800 Total Current Assets – ( Accounts Receivable + Cash invested) D.$212,300 Total Current Liabilities + Total Non-current Liabilities E.$786,296 Total Liabilities/Debt-to-Asset Ratio F.$714,996 Total Assets – Total Current Assets G.$79,996 Total Non-Current Assets – Machinery – Land H.$573,996 Total Assets – Total Liabilities

Determine the value of the truck, a non-current asset (NCA) and the amount of current liability (CL) and non-current liability (NCL) that will appear on the balance sheet: NCACLNCL a. at end of year 2 $38,700$21,545$199,502 b. at end of year 3 $31,800$23,053$176,448 c. at end of year 4 $24,900$24,667$151,782

Special Thanks to: USDA BFRDP Grant Program Oklahoma State University ▫ Eric A. DeVuyst, Department of Agricultural Economics National Association of Agricultural Educators