AGEC 3423 HW2 Spring 2020 1. True or false? Assets + Liabilities = Owner's Equity. Why? (1 pt) 2. True or false? If the debt/equity ratio increases, the debt/asset ratio will also increase Why? (3pts) 3. True or false? A business with a higher working capital will also have a higher current ratio. Why? (3pts) 4. Use your knowledge of balance sheets and ratio analysis to complete the following abbreviated balance sheet. The current ratio = 2.0, and the debt/equity ratio = 1.0. (12pts) Assets Liabilities Current assets $80,000 Current liabilities Noncurrent assets Noncurrent liabilities Total liabilities Owner equity $100,000 Total assets Total liabilities and owner equity 5. Does a balance sheet show the annual net farm income for a farm business? Why or why not? (3pts) Owner equity $100,000 Total assets Total liabilities and owner equity 5. Does a balance sheet show the annual net farm income for a farm business? Why or why not? (3pts) 6. Why is there no valuation adjustment on a cost-basis balance sheet? (4pts) 7. Would the following entries to a farm balance sheet be classified as assets or liabilities? As current or noncurrent? (Ipt each (5pts total)) a. Machine shed b. Feed bill at local feed store c. A 20-year farm mortgage contract d. A 36-month certificate of deposit e. Newborn calves 8. Assume you are an agricultural loan officer for a bank, and a customer requests a loan based on the following balance sheet. Conduct a ratio analysis and give your reasons for granting or denying an additional loan. (Include/Report their working capital, current ratio, debt-to-asset, debt-to-equity, and equity-to-asset ratios) What is the weakest part of this customer's financial condition? (5pts for the ratios 4pts for the explanation (9pts total)) Assets Liabilities Current assets $75,000 Current liabilities $100,000 Noncurrent assets 675,000 Noncurrent liabilities 200,000 Total liabilities 300,000 Owner equity 450,000 $750,000 Total assets $750,000 Total liabilities plus equity