Deck 2: Measuring Your Financial Health and Making a Plan

Question 1

Current liabilities are those that can typically be paid off in full within twelve months.

Answer 1

True

Question 2

The common thread among investment assets is

A) they are purchased for the purpose of generating wealth.
B) they are purchased for one's personal use, like a vehicle or residence.
C) they provide the necessary liquidity in case of an emergency.
D) they must be easily turned into cash with little or no loss in value.

Answer 2

they are purchased for the purpose of generating wealth.

Question 3

When including an asset like a car on your balance sheet

A) list its value as given in a blue book or site like www.edmunds.com.
B) list the original purchase price of the vehicle.
C) list the amount it would cost to purchase a new model of this vehicle.
D) none of the above

Answer 3

list its value as given in a blue book or site like www.edmunds.com.

Question 4

Liabilities are best described as

A) monetary items of value that you own.
B) financial debts and obligations that you owe.
C) your net worth.
D) assets that depreciate over time.
E) intangible obligations.

Question 5

Items on the balance sheet that represent amounts owed to others are termed

A) assets.
B) liabilities.
C) revenues.
D) expenses.
E) none of the above

Question 6

Which of the following are not typically found on a balance sheet?

A) monetary assets
B) mortgage interest payments
C) current market value of home
D) interest earned on a CD at the bank.
E) both B and D are not found on a balance sheet.

Question 7

A physical asset, such as furniture or a car, is called a(n) ________.

A) tangible asset
B) financial asset
C) investment
D) liability
E) none of the above

Question 8

Fair market value refers to

A) what an asset could be sold for today.
B) what you paid when you purchased an asset.
C) what an asset will be worth at some point in the future.
D) how the price of an asset has changed since its original purchase.

Question 9

One of the following items would not go on a balance sheet. Which one is it?

A) current balances owed on your utility bills
B) credit card balance owed
C) mortgage payment paid
D) automobile loan balance
E) student loan balance

Question 10

Before you can hope to achieve your financial goals, you will need to first measure your current financial health and develop a plan and a budget.

Question 11

Insolvency results from taking in more than you consume financially.

Question 12

You know you are insolvent when

A) your expenses exceed your income.
B) your assets are less than your liabilities.
C) your net worth is negative.
D) your debt ratio is too high.
E) both B and C above

Question 13

Assets that you purchase for the purpose of accumulating wealth to satisfy your financial goals are called

A) monetary assets.
B) intangible assets.
C) investment assets.
D) all of the above are correct.

Question 14

When measuring your current financial condition it is important to create

A) positive net worth.
B) a personal balance sheet.
C) an income statement.
D) positive net income.
E) both B and C are required.

Question 15

The house that you are leasing from the landlord is a good example of a tangible asset that you would list on your balance sheet.

Question 16

Explain what goes on a balance sheet and its uses.

Question 17

Net income is used in calculating one's networth.

Question 18

In some cases insolvency can lead to bankruptcy.

Question 19

To determine your level of net worth, subtract your liabilities from your positive net equity.

Question 20

Which financial planning document should you use to measure your current financial position?

A) budget
B) cash budget
C) balance sheet
D) income statement
E) statement of financial ratios

Question 21

An expenditure over which you have no control, are obligated to make, and is generally at a constant level each month is called a ________ expenditure.

A) fixed
B) variable
C) stationary
D) discretionary
E) none of the above

Question 22

What would happen to your net worth if your sold a tangible asset you owned for $1,000 and used the money to pay off your credit card balance for $1,000?

A) Since your liabilities decreased, your net worth would increase by $1,000.
B) Since your assets decreased, your net worth would decrease by $1,000.
C) Your net worth would increase by $500.
D) Your net worth would remain the same.

Question 23

Your net worth, or your general level of financial worth, is found by

A) subtracting your expenses from your income.
B) dividing your monetary assets by your current liabilities.
C) subtracting your liabilities from your assets.
D) dividing monthly debt (less mortgage payment) by monthly income.
E) subtracting current liabilities from monetary assets.

Question 24

A statement that records where your money has come from and where it has gone over some period of time is called a(n)

A) income statement.
B) balance sheet.
C) statement of net worth.
D) none of the above

Question 25

An expenditure over which you have no control and are obligated to make is a

A) repeating expenditure.
B) fixed expenditure.
C) constant expenditure.
D) long-term expenditure.
E) contractual expenditure.

Question 26

An expenditure over which you have control, are not obligated to make, and may vary from month to month is call a ________ expenditure.

A) fixed
B) variable
C) liquid
D) vacillating
E) none of the above

Question 27

An expenditure that you can control over time and that you can manage is a(n)

A) variable expenditure.
B) fixed expenditure.
C) constant expenditure.
D) short-term expenditure.
E) adjustable expenditure.

Question 28

Describe an income statement and its functions.

Question 29

If your liabilities are greater than the value of your assets you are considered

A) unstable.
B) bankrupt.
C) insolvent.
D) unbalanced.

Question 30

Claudia has $4,500 automatically deducted for insurance from her annual salary of $60,000. Additionally $7,500 is deducted each year in taxes. When preparing her personal income statement, what figure should Claudia enter for her income?

A) $55,500
B) $48,000
C) $52,500
D) $60,000

Question 31

Suppose that Doug's only assets are an automobile worth $10,000 and a checking account with a $5,000 balance. His only liabilities are a student loan balance of $12,000 and a balance of $9,000 on his car loan. What is his net worth?

A) $21,000
B) $15,000
C) $6,000
D) Doug is currently insolvent.
E) None of the above statements are correct.

Question 32

An income statement tracks the amount of money you have coming in and going out over some period of time, like a month or a year.

Question 33

Which of the following would be included on a personal income statement?

A) Your 401K balance
B) Buying a flat-screen TV on credit
C) Making a payment to your credit card company
D) All of the above

Question 34

Which type of expenditure would probably be the hardest for an individual to track?

A) credit card
B) cash
C) checks written
D) automatic payments
E) direct deposits

Question 35

The interest charge on your credit card statement should be listed on your personal income statement as a variable expense.

Question 36

Practical uses of an income statement include

A) determining whether you are earning more than you spend.
B) spotting problem areas of overspending.
C) determining if money is available for saving or investment.
D) knowing where your money is going.
E) all of the above

Question 37

Suppose that Cheryl's only assets are an automobile worth $10,000 and a checking account with a $5,000 balance. Her only liabilities are a student loan balance of $2,000 and a balance of $8,000 on her car loan. What is her net worth?

A) $10,000
B) $8,000
C) $5,000
D) $2,000
E) none of the above

Question 38

How would an income statement benefit one in creating a financial plan?

A) Determine whether one is earning more than one spends.
B) Spot problem areas of overspending.
C) Determine if money is available for saving or investment.
D) Know where one's money is going.
E) all of the above

Question 39

A personal income statement is prepared

A) on an accrual basis.
B) on a cash basis.
C) based on actual cash flows.
D) only B and C above
E) all of the above

Question 40

Which of the following might be found on an income statement?

A) wages and salaries
B) interest and dividends
C) income taxes paid
D) payroll taxes paid
E) all of the above

Question 41

Alysha currently has $500 in monetary assets and currently has $5000 in current liabilities. What is her current ratio now?

A) .100 percent
B) .10 times
C) 100 percent
D) 10 times

Question 42

A debt ratio is aimed at determining if you have adequate liquidity to meet emergencies.

Question 43

Using financial ratios helps you quickly compare and analyze the raw data found in your personal income statement and balance sheet.

Question 44

Below are several people and their current ratios. If they were to lose their jobs today, which one would have more time and more choices until they find their next job?

A) Sally has a current ratio of 0.85 times.
B) Leroy has a current ratio of 2.5 times.
C) Bob has a current ratio of 1 time.
D) There is not enough information to answer this question.

Question 45

One's ________ is found by dividing total debt or liabilities by total assets.

A) Debt ratio
B) Current ratio
C) Net worth
D) Asset ratio
E) none of the above

Question 46

The purpose of using financial ratios is to

A) save space on your financial statements.
B) share your financial figures with your advisors.
C) help to analyze your raw data to compare how well you are doing.
D) better understand how you are managing your financial resources.
E) both C and D above

Question 47

Patty currently has $9,000 in monetary assets. Her total annual living expenses are $36,000 per year. She has a $12,000 balance on her car loan and she has $45,000 in equity in her house. What is her month's living expenses covered ratio?

A) 1.125 times
B) 3.75 times
C) 3.0 times
D) There is not enough information to answer this question

Question 48

The current ratio is a measure of liquidity. What information does it tell you?

A) It tells you how many current assets you own free and clear.
B) It tells you how much your debt payments for the current period are.
C) It tells you how many times you can pay off your current liabilities by using your liquid assets.
D) It tells you what portion of your total liabilities are current liabilities.

Question 49

One's ________ is found by dividing monetary assets by current liabilities and is a good measure of liquidity.

A) Debt ratio
B) Current ratio
C) Net worth
D) Net cash flows

Question 50

Kareem currently has $6000 in monetary assets and currently has $2000 in current liabilities. What is his current ratio now?

A) 2000/6000
B) .334 times
C) 6000/2000
D) 3 times
E) Both C and D are correct

Question 51

Hector's month's living expenses covered ratio is currently 0.25 months. He just broke his leg and will not be able to work for 6 weeks. What most likely will Hector experience without a paycheck for 6 weeks?

A) He may have to liquidate some of his tangible or investment assets to keep current on his monthly bills
B) He doesn't have to worry because he has plenty of money in his savings accounts.
C) He may have to borrow some money to keep current on his monthly bills
D) There is not enough information to answer this question.
E) Both A and C are realistic possibilities for Hector.

Question 52

Hector and Maria Montez are trying to figure out their current financial health. They have listed the following items from their most recent statements. They will pay off their car loan in three years. Their gross household income is $3,800 per month. They receive $75 month in interest income from their investments.
Savings account: $1,200
Checking account: $800
Credit card balance: $1,000
Car loan balance: $12,000
Car market value: $8,000
Furniture; market value: $2,000
Stocks and bonds: $10,000
What is their current net worth?

A) $13,000
B) $22,000
C) $9,000
D) $35,000
E) $(13,000)

Question 53

Suppose that you were trying to determine how much income was available for future monetary needs as well as for investments. You would most likely use which of the following ratios?

A) current ratio
B) debt ratio
C) savings ratio
D) total asset turnover
E) none of the above

Question 54

Henry currently has $1250 in monetary assets and also has $1250 in current liabilities. What is his current ratio?

A) 1 time
B) 100 percent
C) 1 percent
D) 0

Question 55

Suppose that you wanted to calculate a financial ratio to measure your liquidity. You would most likely use the ________ ratio.

A) debt
B) long-term debt coverage
C) savings
D) current
E) none of the above

Question 56

Which of the following would you calculate if you were concerned about your financial resources with regards to unplanned money emergencies?

A) liability ratio
B) debt ratio
C) long-term debt coverage ratio
D) current ratio
E) none of the above

Question 57

Which questions do financial ratios help you answer?

A) Do I have adequate liquidity to meet emergencies?
B) Do I have the ability to meet my debt obligations?
C) Am I saving as much as I think I am?
D) all of the above
E) only A and B above

Question 58

Does how you use debt effect your net worth?

Question 59

Jorge currently has a debt ratio of 37 percent and Jose's is 102 percent. They both have the same take home pay every month. How can we describe their current financial situation?

A) Jorge is currently solvent.
B) Jose is currently insolvent.
C) Jorge probably has more money available to enjoy every month.
D) Jose probably doesn't have much money available to enjoy every month.
E) All of the above are true based on their ratios.

Question 60

Below are several people and their current ratios. If they were to lose their jobs today, which one would probably experience financial stress and pressures the quickest?

A) Elmo has a current ratio of 0.5 times.
B) Andy has a current ratio of 2.1 times.
C) Dee has a current ratio of 1 time.
D) There is not enough information to answer this question

Question 61

A plan for controlling and forecasting your cash inflows and cash outflows is called a(n) ________.

A) income statement
B) balance sheet
C) cash budget
D) statement of changes in financial position
E) none of the above

Question 62

George and Betty, a middle-aged couple, have watched their savings account dwindle over the years. They both make good incomes and can't understand why they aren't saving more each month. Below is their financial information to complete an income statement.
Gross monthly income: $8,000
Income taxes withheld monthly: $2,300
Monthly interest income from investments: $100
Monthly insurance payments: $700
Monthly housing expenses: $4,500
Monthly food expenses: $800
Miscellaneous expenses: $400
George and Betty ask you for financial advice. What would you tell them to do?

A) They should hire a Certified Financial Planner to assist them.
B) Nothing. With their income they are in good shape financially.
C) They need to live within their means.
D) Both A and C would be good advice for them.

Question 63

A(n) ________ is a book or notebook or a type of document found on a computer program in which one records ones expenditures.

A) blue book
B) ledger
C) cash budget
D) income statement
E) none of the above

Question 64

Suppose that you have been operating a marketing business out of your home. It has recently expanded beyond belief. Since you have neglected your personal finances for some time, what would you do as a first step?

A) Separate your personal finances from the business finances.
B) Include your personal finances with the business finances to save time.
C) Rent a separate office for your business activities.
D) Purchase a software program to handle both your business and personal finance at the same time.

Question 65

You have learned that a budget

A) can be pretty simple or pretty sophisticated.
B) is a process of setting spending goals for the upcoming month or year.
C) is a plan for controlling cash inflows and cash outflows.
D) includes both actual and estimated expenses.
E) All of the above are true about budgets.

Question 66

George and Betty, a middle-aged couple, have watched their savings account dwindle over the years. They both make good incomes and can't understand why they aren't saving more each month. Below is their financial information to complete an income statement.
Gross monthly income: $8,000
Income taxes withheld monthly: $2,300
Monthly interest income from investments: $100
Monthly insurance payments: $700
Monthly housing expenses: $4,500
Monthly food expenses: $800
Miscellaneous expenses: $400
What is their current savings ratio?

A) 10.3 percent
B) negative 10.3 percent
C) zero
D) none of the above.

Question 67

What questions do financial ratios help answer?

Question 68

Hector and Maria Montez are trying to figure out their current financial health. They have listed the following items from their most recent statements. They will pay off their car loan in three years. Their gross household income is $3,800 per month. They receive $75 month in interest income from their investments.
Savings account: $1,200
Checking account: $800
Credit card balance: $1,000
Car loan balance: $12,000
Car market value: $8,000
Furniture; market value: $2,000
Stocks and bonds: $10,000
What is their debt ratio?

A) 169 percent
B) 1.69 times
C) 0.59 percent
D) 0.59 times
E) 2 times

Question 69

Which of the following financial documents would you to use to create a financial plan?

A) balance sheet
B) income statement
C) budget
D) cash budget
E) all of the above

Question 70

Hector and Maria Montez are trying to figure out their current financial health. They have listed the following items from their most recent statements. They will pay off their car loan in three years. Their gross household income is $3,800 per month. They receive $75 month in interest income from their investments.
Savings account: $1,200
Checking account: $800
Credit card balance: $1,000
Car loan balance: $12,000
Car market value: $8,000
Furniture; market value: $2,000
Stocks and bonds: $10,000
Assuming that they have no current bills other than those that are listed, what is their current ratio?

A) 0.59 times
B) 2000/1000
C) 2 times
D) Both B and C are correct
E) Not enough information available

Question 71

Which type of recordkeeping system is best to use with personal finances?

A) pencil and a notebook
B) computerized
C) the one your accountant suggested
D) the one that you will use
E) the one you did yourself

Question 72

Having negative net income every once in a while is not such a bad thing as long as you have planned for it.

Question 73

How do you calculate the current ratio, debt ratio, and savings ratio?

Question 74

Leroy went shopping today and used his Visa card to buy a new sweater. He wrote a personal check to pay for a new video game. He bought some snack food using cash. Which of these purchases are difficult to track and monitor on his budget?

A) The sweater because it costs more than what he budgeted for clothing this month
B) The video games because he did not add a budget category for electronics.
C) The snacks because cash transactions don't leave a paper trail.
D) all of the above

Question 75

A financial ratio by itself is of little value. To what can you compare your financial ratios to make them very valuable financial planning tools?

Question 76

Which of the following will be the best type of record keeping system to use in maintaining financial records?

A) manual method with pencil and notebook
B) computer software
C) the CPA's system
D) one you will actually use
E) Any record system out there will do.

Question 77

Explain the steps in developing a cash budget.

Question 78

Explain the relationship between the debt ratio and insolvency?

Question 79

Hector and Maria Montez are trying to figure out their current financial health. They have listed the following items from their most recent statements. They will pay off their car loan in three years. Their gross household income is $3,800 per month. They receive $75 month in interest income from their investments.
Savings account: $1,200
Checking account: $800
Credit card balance: $1,000
Car loan balance: $12,000
Car market value: $8,000
Furniture; market value: $2,000
Stocks and bonds: $10,000
What is their month's living expenses covered ratio?

A) 2 months
B) 2.44 months
C) 1.69 months
D) 0.5 months
E) Not enough information to answer this question

Question 80

George and Betty, a middle-aged couple, have watched their savings account dwindle over the years. They both make good incomes and can't understand why they aren't saving more each month. Below is their financial information to complete an income statement.
Gross monthly income: $8,000
Income taxes withheld monthly: $2,300
Monthly interest income from investments: $100
Monthly insurance payments: $700
Monthly housing expenses: $4,500
Monthly food expenses: $800
Miscellaneous expenses: $400
What is George and Betty's net income?

A) $1,700
B) $(600)
C) $(500)
D) $1600
E) Not enough information available to answer question.