Deck 2: Using Financial Statements and Budgets

Question 1

Investments are intangible financial assets typically acquired to achieve long-term personal financial goals.

Answer 1

True

Question 2

All assets are recorded on the balance sheet at their original cost.

Answer 2

False

Question 3

Jewelry,furniture,and computers are examples of personal property.

Answer 3

True

Question 4

A budget is a detailed financial forecast.

Question 5

Financial planning is necessary only if you earn a lot of money.

Question 6

A charge made on your credit card becomes a liability as soon as the charge is incurred.

Question 7

The income and expenditures statement provides a measure of financial performance over a period of time.

Question 8

Your auto loan payments would be listed as an expense on the income statement.

Question 9

A budget is a detailed statement of what income and expenses occurred over a past period.

Question 10

Assets listed on your balance sheet must have monetary value.

Question 11

You are more likely to achieve your goals if a definite goal date is set.

Question 12

Assets purchased on credit should be included on the asset side of the balance sheet.

Question 13

The financial planning process is regulated by state governments when done by professionals.

Question 14

Money I loaned to a friend is a liability on my balance sheet.

Question 15

Real property refers to immovable property,land and anything fixed to it,which have a relatively long life and high cost.

Question 16

A balance sheet shows your financial condition as of the time the statement is prepared.

Question 17

The income statement includes information on your latest paycheck.

Question 18

Investment assets include items such as boats or automobiles.

Question 19

A house and land are examples of real property.

Question 20

A budget is a financial report that forecasts your current income as a percentage of your past earnings.

Question 21

Inability to reach short-term goals will significantly affect your ability to reach long-term goals.

Question 22

When the income statement indicates a surplus,this may be used to increase net worth by increasing assets or decreasing liabilities.

Question 23

An income statement deficit would increase net worth.

Question 24

A cash deficit decreases net worth.

Question 25

A budget is an orderly estimate of income and expenditures.

Question 26

The equity in your home is the difference between the loan balance and the purchase price.

Question 27

The balance sheet equation is assets plus liabilities equals net worth.

Question 28

If you listed your gross salary in the income portion of the budget,the expenditures section must include income taxes and social security.

Question 29

Mary and Tom purchased their home for $150,000,and it is now worth $175,000.Its asset value is $150,000.

Question 30

Your net worth and your equity in owned assets are the same basic concept.

Question 31

Only the current month's payment on your mortgage loans would be listed on the balance sheet as a liability.

Question 32

A cash surplus will typically produce a positive savings ratio.

Question 33

A family could have a positive savings ratio at the same time its debt service ratio is increasing.

Question 34

Interest you earned on your savings account would be an entry on the balance sheet.

Question 35

The income and expenditures statement is a summary of actual income and expenditures over a specific period of time.

Question 36

Balance sheets and income statements are most useful if prepared at least annually.

Question 37

The savings ratio is useful in the evaluation of the balance sheet.

Question 38

If you obtain a loan to purchase a car in June,this loan amount would be included as income for June.

Question 39

The liquidity ratio is an indicator of a family's ability to pay current debts if there is an interruption in income.

Question 40

If you use net salary as income on your budget,the expenditures section must include income and social security taxes.

Question 41

Only four categories of spending account for almost 90% of all consumer spending.

Question 42

The best place to keep a budget is in a safe deposit box.

Question 43

The savings ratio indicates the percentage of after-tax income that is saved.

Question 44

You have a balanced budget when total income for the year equals or exceeds total expenditures for the year.

Question 45

Using the future value calculations to estimate the funds needed to meet a goal takes compounding into account.

Question 46

A cash budget has value only if you use it,review it regularly,and keep careful records of income and expenses.

Question 47

The level of the debt service ratio would indicate your ability to meet loan payments out of current income.

Question 48

Using time value of money is most important when planning for short-term goals.

Question 49

Net worth is greatest for those in their prime working years,about age 55.

Question 50

Net worth peaks at about age 65 and then diminishes throughout retirement years.

Question 51

Net income (after taxes)should be used when developing an income and expense statement.

Question 52

Monthly statements and pay stubs can be shredded when year-end statements are received.

Question 53

Using time value of money is important when planning for long-term goals.

Question 54

The best way to balance your budget is to increase borrowing.

Question 55

When preparing a cash budget,estimating expenses using actual expenses from previous years and by tracking current expenses makes the task easier.

Question 56

In a budget,"fun money" is a budget category used for family members to spend as they like without having to account for how it is spent.

Question 57

Net worth achieves its highest level beginning at age 65 and increases throughout retirement years.

Question 58

A solvency ratio shows how much "cushion" you have as a protection against insolvency.

Question 59

Budgeting and record keeping are really the same activity.

Question 60

You may be under-budgeting for food if you continually have monthly deficits in the food category.

Question 61

Sonny and Cher have a net worth of $35,000 and total assets of $200,000.If their revolving credit and unpaid bills total $2,200,what are their long-term liabilities?

A) $115,000
B) $140,000
C) $142,200
D) $162,800
E) $165,000

Question 62

The main purpose of a budget is to:

A) develop financial goals.
B) calculate discounted cash flow.
C) give feedback to the plan.
D) monitor and control financial outcomes.
E) revise depreciation schedule.

Question 63

A(n)_____ would not be listed as an asset on your balance sheet.

A) mortgaged home
B) savings account
C) owned automobile
D) checking account
E) leased automobile

Question 64

Your _____ is an example of a liquid asset.

A) home
B) car
C) checking account
D) charge account
E) life insurance cash value

Question 65

_____ would not be listed as a liability on your balance sheet.

A) Taxes owed
B) Loan balances
C) Bank credit card charges
D) Savings accounts
E) Rent due

Question 66

The three parts of your balance sheet are your:

A) income,liabilities,and net worth.
B) assets,expenditures,and net worth.
C) assets,liabilities,and expenses.
D) assets,liabilities,and net worth.
E) income,liabilities,and assets.

Question 67

Mandy and Jeff have a net worth of $25,000 and total assets of $140,000.If their revolving credit and unpaid bills total $2,200,what are their total liabilities?

A) $115,000
B) $140,000
C) $142,200
D) $165,000
E) $167,200

Question 68

Budgets are:

A) restrictive.
B) complicated.
C) forward looking.
D) permanent.
E) unnecessary.

Question 69

_____ would not be a long-term financial goal.

A) Purchasing a new car
B) Providing adequate life insurance
C) Reducing income taxes
D) Paying your phone bill
E) Planning for retirement

Question 70

_____ is an example of a personal asset.

A) Jewelry
B) Mutual fund
C) Corporate bond
D) Charge account balance
E) Premium on auto insurance

Question 71

When Phil lists his house on his balance sheet,he should record the:

A) actual purchase price.
B) replacement value.
C) insured value.
D) deferred price.
E) fair market value.

Question 72

Balance sheet liabilities should be recorded at their:

A) original outstanding balance.
B) year-end outstanding balance.
C) average outstanding balance.
D) current outstanding balance.
E) none of these.

Question 73

The balance sheet describes a family's financial position:

A) at a certain point in time.
B) as an annual summary.
C) as at a time period less than one year.
D) at a future time.
E) none of these

Question 74

On a balance sheet,a mortgage loan is recorded as the:

A) interest only.
B) sum of interest paid and the outstanding balance.
C) sum of interest due and the outstanding balance.
D) principal portion only.
E) none of the above.

Question 75

Another term sometimes used instead of net worth is:

A) assets.
B) net debts.
C) long-term liabilities
D) equity.
E) liquid assets.

Question 76

Sam and his wife Ann purchased a home in Lubbock,Texas in 1980 for $100,000.Their original home mortgage was for $90,000.The house has a current market value of $175,000 and a replacement value of $200,000.They still owe $55,000 on their home mortgage.Sam and Ann are now constructing their balance sheet.How should their home be reflected on their current personal balance sheet?

A) $200,000 asset and $55,000 liability
B) $200,000 asset and $90,000 liability
C) $175,000 asset and $55,000 liability
D) $175,000 asset and $90,000 liability
E) $100,000 asset and $55,000 liability

Question 77

Kathy purchased new furniture for $10,000.She put $1,000 down and financed $9,000.She will pay $350 per month until the loan is paid off.Which of the following is true of the value of furniture Kathy would record on her personal balance sheet?

A) The furniture should be recorded as an asset of $10,000 on Kathy's balance sheet.
B) The $9,000 is entered as a liability on Kathy's balance sheet.
C) The furniture should be recorded as a $1,000 expenditure on Kathy's balance sheet.
D) The $350 payments are expenditures on Kathy's income and expenditure statement.
E) All are correct except c

Question 78

A budget is a:

A) plan that calculates the interest on loan.
B) schedule of personal investments.
C) list of prepaid expenses.
D) detailed financial forecast.
E) set of personal financial objectives.

Question 79

The balance sheet equation is:

A) Total Assets - Total Current Liabilities = Net Worth.
B) Total Assets + Total Long-term Liabilities = Net Worth.
C) Total Assets - Total Liabilities = Net Worth.
D) Total Assets + Total Liabilities = Net Worth.
E) Total Liabilities - Total Current Assets = Net Worth.

Question 80

Net worth is:

A) the sum of liquid assets and current liabilities.
B) the sum of gross income and payroll taxes.
C) the sum of net income and deductions for payroll taxes.
D) the difference between total assets and total liabilities.
E) the difference between income and expenses.