Deck 2: Money Management Strategy: Financial Statements and Budgeting

Question 1

Current liabilities differ from long-term liabilities based on

A) the amount owed.
B) the financial situation of the creditor.
C) the interest rate charged.
D) when the debt is due.
E) current economic conditions.

Answer 1

when the debt is due.

Question 2

A brokerage statement is an example of a(n) ____________ record.

A) investment
B) insurance
C) estate planning
D) tax
E) consumer purchase

Answer 2

investment

Question 3

A person's net worth would increase as a result of

A) decreased value on investments
B) reduced earnings.
C) increased spending for current living expenses.
D) increased value of personal possessions.
E) increased amount owed to others.

Answer 3

increased value of personal possessions.

Question 4

Warranties are commonly associated with ____________ purchases.

A) investment
B) insurance
C) consumer
D) financial services
E) credit

Question 5

Which of the following are considered to be personal financial statements?

A) Budget and credit card statements
B) Balance sheet and cash flow statement
C) Checkbook and budget
D) Tax returns
E) Bank statement and savings passbook

Question 6

A home file should be used for:

A) storing all financial documents and records.
B) obsolete financial documents.
C) documents that require maximum security.
D) financial records for current needs.
E) records that are difficult to replace.

Question 7

Which of the following financial documents would most likely be stored in a safety deposit box?

A) FT-4 slips
B) Personal financial statements
C) Warranties
D) Stock certificates
E) Checking account statements

Question 8

Ben Chase needs to pay off some of his debts over the next few months. Which item on his balance sheet would help him decide what amounts are due in the near future?

A) the budget variance
B) investment assets
C) long-term liabilities
D) current liabilities
E) current assets

Question 9

Opportunity cost refers to:

A) current spending habits.
B) changing economic conditions that affect a person's cost of living.
C) storage facilities to make financial documents easily available.
D) trade-offs associated with financial decisions.
E) avoiding the use of consumer credit.

Question 10

Liquid assets refer to

A) amounts that must be paid soon.
B) amounts on which taxes must be paid
C) total income available to a family for spending.
D) the value of investments.
E) items that are easily converted to cash.

Question 11

A family with $70,000 in assets and $22,000 of liabilities would have a net worth of:

A) $70,000.
B) $22,000.
C) $48,000
D) $92,000.
E) $41,000.

Question 12

Items with a monetary worth are referred to as:

A) liabilities.
B) variable expenses.
C) net worth.
D) income.
E) assets.

Question 13

Which of the following would be considered a long-term liability?

A) A charge account payment
B) A mortgage
C) An installment loan
D) An amount due for taxes
E) The amount due on a credit card

Question 14

A personal balance sheet presents

A) items owned and amounts owed.
B) income and expenses for a period of time.
C) earnings on savings and investments.
D) amounts budgeted for spending
E) family financial goals.

Question 15

An individual retirement account is an example of a(n) ____________ asset.

A) liquid
B) common
C) investment
D) household
E) budgeted

Question 16

Which of the following situations is a person who could be insolvent?

A) Assets $56,000; annual expenses $60,000
B) Assets $68,000; net worth $22,000
C) Liabilities $45,000; net worth $6,000
D) Assets $60,000; liabilities $61,000
E) Annual cash inflows $48,000; liabilities $50,000

Question 17

An example of a personal and employment document is a:

A) Social Insurance card.
B) passbook.
C) budget
D) property tax bill.
E) lease.

Question 18

The current financial position of an individual or family is best presented with the use of a(n)

A) budget.
B) cash flow statement.
C) balance sheet.
D) bank statement.
E) time value of money report.

Question 19

Liabilities are amounts representing

A) taxable income
B) items of value.
C) living expenses.
D) debts
E) current assets.

Question 20

A person's net worth is computed by

A) subtracting total liabilities from total assets.
B) deducting current living expenses from total assets.
C) adding assets and liabilities
D) subtracting assets from current liabilities.
E) adding liabilities and budgeted expenses.

Question 21

A budget deficit would result when a person's or family's

A) actual expenses are less than planned expenses.
B) actual expenses are greater than planned expenses.
C) actual expenses equal planned expenses.
D) assets exceed liabilities.
E) net worth decreases.

Question 22

This year Taylor's gross income is $70,000. Her deductions for federal and provincial taxes, CPP contributions and employment insurance are $13,500. She also had after-tax investment earnings of $6,000. Taylor's take-home pay is:

A) $70,000
B) $76,000
C) $77,500
D) $56,500
E) $62,000

Question 23

The payment items that should be budgeted first are

A) variable expenses.
B) investment funds.
C) fixed expenses.
D) unplanned living expenses.
E) entertainment expenses.

Question 24

During the last month, Mary Jane had expenses of $5,000 and an increase in net worth of $700. This means Mary Jane's income for the month was:

A) $700.
B) $4,300.
C) $5,000.
D) $5,700.
E) $5,200.

Question 25

A common deduction from a person's paycheck is for

A) interest.
B) unemployment
C) rent.
D) taxes.
E) current liabilities.

Question 26

Which of the following presents a summary of income and outflows for a period of time?

A) A cash flow statement
B) A bank statement
C) An investment summary
D) balance sheet
E) An asset report

Question 27

A cash flow statement reports a person's or a family's

A) net worth.
B) current income and payments.
C) plan for spending.
D) value of investments.
E) balance of savings.

Question 28

The difference between the amount budgeted and the actual amount is called a

A) financial plan.
B) current liability.
C) change in net worth.
D) budget variance.
E) variable living expense.

Question 29

During the past month, Jennifer Sinnet had income of $3,500 and a decrease in net worth of $200. This means Jennifer's payments for the month were:

A) $3,700.
B) $3,300.
C) $2,800.
D) $1,000.
E) $200.

Question 30

Which of the following payments would be considered a variable expense?

A) Rent
B) An installment loan payment
C) A mortgage payment
D) A monthly parking fee
E) A telephone bill

Question 31

Payments that do not vary from month to month are ____________ expenses.

A) fixed
B) current
C) variable
D) luxury
E) budgeted

Question 32

Ed Bostrom wants to reduce his fixed expenses. What action would be appropriate?

A) Get a part-time job
B) Eat more meals at home than in restaurants
C) Find a place to live with a lower rent
D) Save more money for the future
E) Buy on credit for items that might cost more later

Question 33

If a family planned to spend $370 for food during March but only spent $348, this difference would be referred to as a

A) surplus.
B) deficit.
C) fixed living expense.
D) budget reduction.
E) contribution to net worth.

Question 34

To determine a person's solvency, which financial document should be consulted?

A) Cash flow statement
B) Budget
C) Debt consolidation statement
D) Personal balance sheet
E) Credit report

Question 35

The Crown family has a difficult time staying on a budget. In an effort to actually see what funds are available for various expenses, a ____________ budget would be most appropriate.

A) written
B) computerized
C) physical
D) deficit
E) mental

Question 36

Changes in the cost of living are

A) different in various geographic areas.
B) the same for different locations.
C) constant from month to month.
D) the same for all goods and services.
E) not a factor when preparing a budget.

Question 37

A major expenditure for most families is

A) insurance.
B) contributions.
C) clothing.
D) utilities.
E) transportation.

Question 38

A decrease in net worth would be the result of:

A) income greater than expenses for a month.
B) expenses greater than income for a month.
C) assets greater than expenses.
D) increased earnings on the job.
E) income and expenses equal for a month.

Question 39

Total earnings of a person less deductions for taxes and other items is called

A) budgeted income.
B) gross pay.
C) net worth.
D) total revenue.
E) take-home pay.

Question 40

Improvements in a person's financial position are the result of:

A) increased liabilities.
B) reductions in earnings.
C) increased savings and investments.
D) increased purchases on credit.
E) lower amounts deposited in savings.

Question 41

Which of the following financial documents would most likely be stored in a home file?

A) Serial numbers of expensive items
B) Personal financial statements
C) Mortgage papers, title deed
D) Birth, marriage and death certificates
E) Guaranteed investment securities

Question 42

Janice spends a total of $1,500 a month to cover all living expenses. Which of the following would represent the appropriate emergency fund?

A) $1,500 to $4,500
B) $3,000 to $7,500
C) $4,500 to $9,000
D) $5,000 to $10,000
E) $6,000 to $12,000

Question 43

Janice spends a total of $1,500 a month to cover all living expenses. Which of the following would represent the minimum acceptable emergency fund?

A) Zero
B) $1,500
C) $4,500
D) $9,000
E) $3,000

Question 44

When it comes to savings, most Canadians

A) have an adequate emergency fund.
B) use several different savings techniques.
C) find saving difficult.
D) keep substantial amounts in a regular savings account.
E) reduce the amount they save during their working life.

Question 45

A family with $80,000 in assets and $22,000 of liabilities would have a net worth of:

A) $80,000.
B) $22,000.
C) $58,000
D) $102,000.
E) $36,000.

Question 46

A person's net worth would increase as a result of

A) increased value on investments
B) reduced earnings.
C) increased spending for current living expenses.
D) decreased value of personal possessions.
E) increased amounts owed to others.

Question 47

Which of the following would be considered a long-term liability?

A) A charge account payment
B) A 36 month car loan
C) An installment loan
D) An amount due for taxes
E) The amount due on a credit card

Question 48

____________ is the recommended budgeting strategy for dual income households where the two partners have trust and shared values and goals?

A) Pooled income
B) 50/50
C) Proportionate contributions
D) Sharing the bills
E) Sharing goals

Question 49

Payments that do not vary from month to month are ____________ expenses.

A) variable
B) current
C) fixed
D) discretionary
E) budgeted

Question 50

The main purposes of personal financial statements are to:

A) summarize the value of the items that you own and the amounts that you owe
B) track your cash inflows by source and your outflows by type
C) identify strengths and weaknesses in your current financial situation and provide data for use in filing your income tax return or applying for credit
D) measure progress toward your financial goals
E) all of the above

Question 51

To calculate your net worth, you need to know your:

A) annual income
B) assets and liabilities
C) monthly car loan cost
D) income after tax
E) pension contributions

Question 52

Which of the following situations is a person who could be insolvent?

A) Assets $50,000; annual expenses $60,000
B) Assets $68,000; net worth $22,000
C) Liabilities $45,000; net worth $6,000
D) Assets $5,000; liabilities $6,000
E) Annual cash inflows $48,000; liabilities $50,000

Question 53

A five-year non-redeemable GIC is classified as a(n) _______________ asset on the personal balance sheet.

A) liquid
B) investment
C) personal
D) business
E) marketable

Question 54

This year Phil's gross income is $80,000. His deductions for federal and provincial taxes, CPP contributions and employment insurance are $16,000. He also had after-tax investment earnings of $6,000. Taylor's take-home pay is:

A) $80,000
B) $86,000
C) $70,000
D) $64,000
E) $58,000

Question 55

During the last month, Astrid had expenses of $6,000 and an increase in net worth of $100. This means Astrid's income for the month was:

A) $6,000
B) $5,900
C) $6,100
D) $5,700
E) $5,200

Question 56

Jennifer, a recent Concordia graduate, is struggling to pay off her $15,000 student loan. She has found employment with an international firm. Jennifer manages to balance her cash flows, but has only $500 in a chequing account to pay incoming bills. Her monthly after-tax cash inflows and expenses equal $2,000. What should be Jennifer's number one financial goal?

A) Pay off her student loan immediately.
B) Start an emergency fund.
C) Contribute to an RRSP.
D) Purchase life insurance coverage.
E) Accumulate funds for a down payment on a home

Question 57

Given the following, what is the individual's net worth? $$\begin{array} { | l | r | l | r | } \hline \text { Bank account } & \$ 2,500 & \text { Student loan } & \$ 9,500 \\\hline \text { Monthly gross income } & \$ 3,200 & \text { RRSP } & \$ 10,250 \\\hline \text { Annual car payments } & \$ 3,600 & \text { Unpaid vet bills } & \$ 600 \\\hline \text { Jewellery } & \$ 5,000 & \text { Car loan } & \$ 1,900 \\\hline \text { CSV (whole life) } & \$ 1,500 & \text { Car (resale value) } & \$ 2,500 \\\hline \text { Annual medical expenses } & \$ 500 & \text { GICs } & \$ 2,060 \\\hline\end{array}$$

A) $11,810
B) $11,410
C) $10,910
D) $6,810
E) $6,500

Question 58

Which of the following financial documents would most likely be stored in a safety deposit box?

A) Company pension information
B) Personal financial statements
C) Warranties
D) Birth, marriage and death certificates
E) Checking account statements

Question 59

Which of the following financial documents would most likely be stored in a safety deposit box?

A) Tax records
B) Personal financial statements
C) Warranties
D) Mortgage papers
E) Checking account statements

Question 60

A person with $80,000 in assets and $122,000 of liabilities would have a net worth of:

A) $80,000.
B) $122,000.
C) $202,000
D) $42,000.
E) - $42,000.

Question 61

Common reasons for saving money include:

A) To set aside money for irregular and unexpected expenses
B) To pay for the replacement of expensive items, such as appliances or an automobile, or to have money for a down payment on a house
C) To buy special items, such as home video or recreational equipment, or to pay for a vacation
D) To provide for long-term expenses, such as the education of children or retirement.
E) All of the above

Question 62

Current liabilities are amounts that must be paid within a short period of time, usually less than a year.

Question 63

Furniture, jewelry, and an automobile are examples of liquid assets.

Question 64

A person's net worth is the difference between the value of the items owned and the amounts owed to others.

Question 65

A person's lifestyle is a reflection of his or her values, goals, career, and family situation.

Question 66

Medical expenses, clothing, and telephone are examples of fixed expenses.

Question 67

Anne spends a total of $2,000 a month to cover all living expenses. Which of the following would represent the appropriate emergency fund?

A) $2,000 to $4,000
B) $3,000 to $7,000
C) $6,000 to $12,000
D) $1,000 to $2,000
E) $6,000

Question 68

If expenses for a month are greater than income, an increase in net worth will result.

Question 69

A budget is a record of how a person or family has spent their money.

Question 70

Most income tax documents and records should be kept in a safety deposit box.

Question 71

Opportunity costs are not only associated with money management decisions involving long-term financial security.

Question 72

Liabilities are cash and items of value that can be easily converted to cash.

Question 73

Financial records that may need to be referred to on a regular basis should not be kept in a safety deposit box.

Question 74

Personal records current budget, cheque book(s) and bank statements.

Question 75

Take-home pay is a person's earnings after deductions for taxes and other items.

Question 76

A personal cash flow statement presents income and outflows of cash for a given time period, such as a month.

Question 77

Insolvency is a result of having an unequal balance of tangible and intangible goods.

Question 78

The main purpose of a budget is to help you

A) Live within your income and spend your money wisely
B) Prioritize and attain your financial goals
C) Prepare for financial emergencies
D) Develop wise financial management habits
E) All of the above

Question 79

When one money management decision is selected, something else must be given up.

Question 80

Insolvency is the inability to pay debts by the due date, because liabilities exceed the value of assets.