Which statement is true?

Which statement is true?

• A. Investments in growing crops should be included in an inventory statement.
• B. Net farm income from operations includes gains or losses from disposal of farm capital items.
• C. Short term goals may require more than one year to achieve.
• D. A net capital ratio greater than one indicates the business is solvent.

Answer: (A)

Growing crops are assets in production, not finished goods or ordinary expenses. Because they represent resources that the farm owns and that will be sold or harvested in the future, they belong with other current assets as inventory. Including them in an inventory statement reflects the value invested in production and the timing of revenue once the crops are harvested or sold. This treatment keeps the financial picture accurate, showing what the farm has on hand and what will become revenue later. Gains or losses from disposing of farm capital items are not part of net farm income from operations; those are typically recorded as non-operating or other income/expenses. Short-term goals are by definition achievable within one year, so the statement that they may require more than a year doesn’t fit. A net capital ratio greater than one isn’t a standard, reliable measure of solvency; solvency is usually assessed via equity relative to assets or debt-to-asset type measures, not this ratio.

Growing crops are assets in production, not finished goods or ordinary expenses. Because they represent resources that the farm owns and that will be sold or harvested in the future, they belong with other current assets as inventory. Including them in an inventory statement reflects the value invested in production and the timing of revenue once the crops are harvested or sold. This treatment keeps the financial picture accurate, showing what the farm has on hand and what will become revenue later.

Gains or losses from disposing of farm capital items are not part of net farm income from operations; those are typically recorded as non-operating or other income/expenses. Short-term goals are by definition achievable within one year, so the statement that they may require more than a year doesn’t fit. A net capital ratio greater than one isn’t a standard, reliable measure of solvency; solvency is usually assessed via equity relative to assets or debt-to-asset type measures, not this ratio.