Deck 2: Measuring Your Financial Health and Making a Plan

Question 1

The first section of a balance sheet represents your

A) net worth.
B) financial goals.
C) assets.
D) liabilities.

Answer 1

assets.

Question 2

According to the Keown book,the median net worth for American families in which the head of the household is less than 35 years old is below $10,000.

Answer 2

True

Question 3

Net income is used in calculating one's net worth.

Answer 3

False

Question 4

When measuring your current financial health 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.

Question 5

The term "fair market value" refers to how the price of an asset has changed since its original purchase.

Question 6

A vehicle leased in your name is an example of a tangible asset that you would list on your balance sheet.

Question 7

To calculate your net worth,subtract your total debt from your total assets.

Question 8

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

Question 9

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 10

In some cases insolvency can lead to bankruptcy.

Question 11

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.

Question 12

The term "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 13

Insolvency results from earning more than you spend.

Question 14

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

Question 15

Current liabilities are those that can typically be paid off in full within 12 months.

Question 16

The common thread among investment assets is that

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 liquidity needed in case of an emergency.
D) they must be easily turned into cash with little or no loss in value.

Question 17

Your ________include cash,checking and savings account balances,and money market funds.

A) monetary assets
B) tangible assets
C) physical assets
D) investment assets

Question 18

________ can be more than or less than the price you paid for a given asset,depending on what others are willing to pay for that asset today.

A) Net value
B) Fair market value
C) Intrinsic value
D) Sentimental value

Question 19

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 20

Planning and budgeting requires

A) control.
B) financial restraint.
C) discipline.
D) all of the above.

Question 21

Practical uses of an income statement include

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

Question 22

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

Question 23

Your financial situation is insolvent when

A) your expenses exceed your income.
B) your assets are less than your liabilities.
C) your net worth is positive.
D) your debt ratio is too high.

Question 24

Describe the three sections included in a personal balance sheet.

Question 25

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 26

Which of the following items would not be included on a balance sheet?

A) Balances owed on your utility bills
B) Balances owed on your credit card(s)
C) Mortgage payment paid
D) Automobile loan balance
E) Student loan balance

Question 27

Why is the balance sheet a useful tool?

Question 28

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

A) Budget
B) Cash budget
C) Balance sheet
D) Income statement
E) Statement of financial ratios

Question 29

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

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

Question 30

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

Question 31

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 a mortgage payment) by monthly income.
E) subtracting current liabilities from monetary assets.

Question 32

A physical asset such as a high-definition,flat-screen TV or a Harley Davidson motorcycle is called a(n)

A) financial asset.
B) liability.
C) tangible asset.
D) investment.

Question 33

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 34

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 35

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

A) Monetary assets
B) Mortgage interest payments
C) Home's current market value
D) Interest earned on a CD
E) Both B and D

Question 36

A personal income statement is prepared

A) on an accrual basis.
B) on a cash basis.
C) based on actual cash flows.
D) Both B and C.

Question 37

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 38

How would an income statement help you create a financial plan?

A) Spot potential areas of gambling.
B) Determines whether you are earning more than you spend
C) Determines your net worth
D) Allows you to track future income

Question 39

When including an asset such as a car on your balance sheet

A) list its current value as indicated 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.

Question 40

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 41

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 42

Does your use of debt affect your net worth?

Question 43

An emergency fund,or rainy-day fund,is comprised of liquid assets sufficient to cover 3.5 years of expenditures.

Question 44

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

A) fixed
B) flexible
C) liquid
D) vacillating

Question 45

What would happen to your net worth if you 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 46

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) flexible
C) stationary
D) discretionary
E) none of the above

Question 47

Describe an income statement and its functions.

Question 48

According to the Keown book,an emergency fund consists of liquid assets that are sufficient to cover ________ of expenditures.

A) 1 to 2 months
B) 3 to 6 months
C) 9 to 12 months
D) 18 to 36 months

Question 49

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 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.

Question 50

From her annual salary of $72,000,Kierstan has $5,700 automatically deducted for insurance on an annual basis.Additionally,$9,000 is deducted each year in taxes.When preparing her personal income statement,what figure should Kierstan enter for her income?

A) $66,300
B) $57,300
C) $63,000
D) $72,000

Question 51

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

A) $10,000
B) $8,000
C) $5,000
D) $2,000

Question 52

How can an income statement help you stay solvent?

Question 53

Suppose that Jacob's assets include a motorcycle worth $12,000 and a checking account with a $3,000 balance,while his liabilities include a credit card balance of $4,000 and a motorcycle loan balance of $7,000.What is his net worth?

A) $4,000
B) $5,000
C) $7,000
D) $12,000

Question 54

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

Question 55

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

Question 56

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) A and B

Question 57

Suppose that David'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 with $6,000 negative net worth.
E) None of the above statements are correct.

Question 58

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

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

Question 59

A(n)________ is a reserve or rainy-day fund with money set aside to be used for unexpected expenses or when normal income has been disrupted.

A) emergency fund
B) umbrella fund
C) resources fund
D) risk fund

Question 60

From her annual salary of $60,000,Claudia has $4,500 automatically deducted for insurance on an annual basis.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 61

The current ratio is a measure of liquidity that reflects

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

Question 62

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 63

Tim and Autumn Davis
Tim and Autumn Davis are trying to figure out their current financial health. They will pay off their car loan in three years, their gross household income is $5,700 per month, and they receive $95 per month in interest income from their investments. They have listed the following items from their most recent statements.
Savings account: $3,200
Checking account: $1,800
Credit card balance: $3,000
Car loan balance: $18,000
Car market value: $15,000
Furniture market value: $4,000
Stocks and bonds: $15,000
What is their debt ratio?

A) 123 percent
B) 3 times
C) 1.23 times
D) 0.54 percent

Question 64

Cameron has $17,000 in monetary assets and $4,000 in current liabilities.What is his current ratio?

A) 17,000/4,000
B) .535 times
C) 5 times
D) 13,000/4,000

Question 65

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 66

Your ________ is found by dividing total debt or liabilities by total assets.

A) debt ratio
B) current ratio
C) net worth
D) asset ratio

Question 67

Patty has $9,000 in monetary assets,annual living expenses of $36,000,a $12,000 car loan balance,and $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 68

Tim and Autumn Davis
Tim and Autumn Davis are trying to figure out their current financial health. They will pay off their car loan in three years, their gross household income is $5,700 per month, and they receive $95 per month in interest income from their investments. They have listed the following items from their most recent statements.
Savings account: $3,200
Checking account: $1,800
Credit card balance: $3,000
Car loan balance: $18,000
Car market value: $15,000
Furniture market value: $4,000
Stocks and bonds: $15,000
What is their month's living expenses covered ratio?

A) 2 months
B) 1.23 months
C) 1.75 months
D) Not enough information to answer this question

Question 69

Alysha has $500 in monetary assets and $5,000 in current liabilities.What is her current ratio?

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

Question 70

Tim and Autumn Davis
Tim and Autumn Davis are trying to figure out their current financial health. They will pay off their car loan in three years, their gross household income is $5,700 per month, and they receive $95 per month in interest income from their investments. They have listed the following items from their most recent statements.
Savings account: $3,200
Checking account: $1,800
Credit card balance: $3,000
Car loan balance: $18,000
Car market value: $15,000
Furniture market value: $4,000
Stocks and bonds: $15,000
Assuming that they have no current bills other than those that are listed,what is their current ratio?

A) 0.79 times
B) $5,000/$3,000
C) 2 times
D) Not enough information available

Question 71

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

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.

Question 72

Tim and Autumn Davis
Tim and Autumn Davis are trying to figure out their current financial health. They will pay off their car loan in three years, their gross household income is $5,700 per month, and they receive $95 per month in interest income from their investments. They have listed the following items from their most recent statements.
Savings account: $3,200
Checking account: $1,800
Credit card balance: $3,000
Car loan balance: $18,000
Car market value: $15,000
Furniture market value: $4,000
Stocks and bonds: $15,000
What is their current net worth?

A) $21,000
B) $39,000
C) $18,000
D) $(21,000)

Question 73

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 74

If the people below,with their respective current ratios,were to lose their jobs today,which one would have more time and more choices until he or she found another job?

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

Question 75

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

A) 2,000/6,000
B) .334 times
C) 6,000/2,000
D) 3 times
E) Both C and D are correct.

Question 76

Your ________ 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 77

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 78

Jorge has a debt ratio of 37 percent and Jose has a ratio of 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

Question 79

Sarah has $15,000 in monetary assets,$48,000 in annual living expenses,a $20,000 balance on her car loan,and $60,000 of 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 80

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

A) Current ratio
B) Debt ratio
C) Savings ratio
D) Total asset turnover
E) None of the above