Deck 2: Planning With Personal Financial Statements

Question 1

Creating a cash flow statement requires that you determine

A)assets.
B)liabilities.
C)cash used for expenses.
D)market value of investments.

Answer 1

cash used for expenses.

Question 2

Cash inflows tend to be higher for younger individuals and lower for individuals in their 50s.

Answer 2

False

Question 3

Jeff has a $1,000 salary and a $100 dividend income this month.This month Jim has rent and utilities of $300 and he spent $200 on groceries and $100 on clothing.What is his net cash flow this month?

A)$400
B)$600
C)$500
D)$1,100

Answer 3

$500

Question 4

Cash inflows tend to be the highest in which of the following?

A)College
B)Retirement
C)20 years into a career
D)First job out of college

Question 5

Which of the following usually affects cash inflows the most?

A)The education and income of your parents
B)Your job skills
C)Your personal consumption behavior
D)The size of your family

Question 6

Which of the following is not a cash outflow?

A)Salary
B)Rent
C)Telephone bill
D)Car payment

Question 7

Individuals who switch from a low-demand industry to a high-demand industry usually earn higher incomes.

Question 8

Jim has $1,000 income from his job and $200 stock dividend income this month.This month Jim has rent and utilities of $300 and he spent $300 on groceries and $200 on clothing.What is his cash inflow this month?

A)$1,200
B)$400
C)$600
D)$500

Question 9

Cash outflows are also called

A)assets.
B)expenses.
C)income.
D)liabilities.

Question 10

During the final stage in the life cycle,retirement,people experience higher incomes from their demanding careers.

Question 11

If you prepare a document that shows your cash inflows and cash outflows it is called a(n)________.

Question 12

Which of the following is not a cash inflow?

A)Interest received
B)Dividend income
C)Car payment
D)Salary

Question 13

For most people,the first obstacle is to correctly assess their true net income.

Question 14

Some people with large incomes spend their entire paychecks within a few days,while others with small incomes may be big savers.

Question 15

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

A)net worth.
B)current income and payments.
C)plan for borrowing.
D)value of investments.

Question 16

Which cash inflow will probably be discontinued after retirement?

A)Dividend and interest received from investments
B)Pension payments
C)Salary
D)Social Security benefits

Question 17

Net cash flows are the difference between cash inflows and cash outflows and can be either positive or negative.

Question 18

Cash outflows represent your liabilities such as the pay-off on your car or home.

Question 19

Salary or wages are the only cash inflows for working people.

Question 20

The personal cash flow statement measures

A)the rate of cash flow.
B)cash outflows only.
C)cash inflows and outflows.
D)cash inflows only.

Question 21

In budgeting,it is useful to compare ________ with the budgeted amounts to determine the accuracy or error of the budget and adjust it as necessary.

A)actual inflows
B)actual outflows
C)both actual inflows and outflows
D)current assets

Question 22

A three-month budget is easier to prepare,anticipates large and unusual expenditures,and gives a better picture than a twelve-month budget.

Question 23

Which of the following is not an appropriate approach to solving the problem of an annual budget deficit?

A)Liquidate enough savings or investments to make up the deficit
B)Increase short-term,flexible expenditure items
C)Renegotiate terms for long-term expense items
D)Increase income by getting an additional part-time job

Question 24

Stocks are considered liquid assets since they are easy to sell without a loss in value.

Question 25

A(n)________ is a forecast of your future cash inflows and outflows.

Question 26

Budgeting is a starting point for developing your financial plan.A good understanding of cash inflows and outflows,or what you make and spend is essential.Describe one way to increase your cash inflows and one way to decrease your personal outflows.

Question 27

If spending exceeds the amount of your income over a period of time,your best option is probably to

A)reduce your spending.
B)sell some of your assets.
C)increase your work hours.
D)get a second job.

Question 28

The most common error people make is to underestimate cash inflows and overestimate cash outflows.

Question 29

Many individuals tend to ________ their cash inflows and ________ their outflows.

A)underestimate; overestimate
B)overestimate; underestimate
C)minimize; maximize
D)not know; accurately know

Question 30

One of the problems in making a monthly budget is that some expenses fluctuate quite a bit from month to month.

Question 31

One advantage of budgeting several months in advance is that you will be warned of potential deficiencies and can determine how to cover them.

Question 32

A personal cash flow statement is usually the starting point for an individual's or family's budget.

Question 33

Cash flow can be increased by all of the following except

A)increasing credit card purchases.
B)working overtime.
C)selling stock.
D)getting a second job.

Question 34

All of the following affect cash outflows except

A)the size of the family.
B)your age.
C)your education level.
D)your personal consumption behavior.

Question 35

Careful budgeting and controlled spending lead to self-reliance and a feeling of financial freedom.

Question 36

Detecting future cash flow overages and deficiencies in cash inflows and outflows improves with practice in the budgeting process.

Question 37

If you do not budget for unexpected expenses in a given month,you will likely experience a(n)

A)cash shortage.
B)cash surplus.
C)increase in assets.
D)decrease in liabilities.

Question 38

If both a husband and wife are employed,their consumption behavior will

A)increase.
B)decrease.
C)stay the same.
D)None of the above; the employment of spouses is unrelated to consumption behavior.

Question 39

Getting financial help from family and friends is easy and should be one of your first options in case of emergencies.

Question 40

A budget will not do which of the following?

A)Help determine if cash outflows will be sufficient to cover cash inflows
B)Anticipate cash shortages
C)Determine the excess you have to invest
D)Determine the additional payments you can make to reduce personal debt

Question 41

Which of the following is not a liquid asset?

A)Cash in your pocket
B)Money in a savings account
C)Corporate stock you own outright
D)Money in your checking account

Question 42

Student loans,car loans,and housing loans are good examples of

A)long-term liabilities.
B)current liabilities.
C)short-term debts.
D)personal obligations.

Question 43

Balance sheet assets should be valued at

A)original purchase price.
B)replacement value.
C)insured value.
D)fair market value.

Question 44

Liabilities include all of the following except

A)this year's monthly car payments on a three-year loan.
B)the total mortgage on a home.
C)the amount due on a credit card.
D)the pay-off on a student loan.

Question 45

Bills that are to be paid off within a year are called

A)short-term liabilities.
B)one-year liabilities.
C)current liabilities.
D)insignificant bills.

Question 46

A personal balance sheet presents

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

Question 47

A high debt ratio indicates an excessive amount of debt and should be reduced over time to avoid any debt repayment problems.

Question 48

Which one of the following is a liquid asset?

A)Cash in a savings account
B)A swimming pool
C)Real estate
D)Stock held in an IRA

Question 49

Which of the following is not considered an asset for a family?

A)Cash in a checking account
B)A mortgaged home
C)A leased car
D)Furniture

Question 50

Liabilities can be calculated by

A)adding assets plus net worth.
B)subtracting net worth from assets.
C)adding assets plus income.
D)subtracting expenses from assets.

Question 51

The difference between assets and liabilities is called

A)surplus.
B)deficit.
C)net income.
D)net worth.

Question 52

When a person owns corporate stocks,government or corporate bonds,or mutual funds,these are called

A)liquid assets.
B)household assets.
C)investment assets.
D)retirement assets.

Question 53

Property such as a person's home,car,and furniture is called

A)liquid assets.
B)household assets.
C)major property assets.
D)investment assets.

Question 54

Long-term liabilities are debts that will be paid at least three years into the future.

Question 55

Which of the following is not a true statement about mutual funds?

A)They are managed by professional managers
B)Proceeds are only invested in stocks
C)Minimum investment is required
D)The value of shares is reported in The Wall Street Journal

Question 56

Liquid assets refers to

A)the earnings on savings.
B)the ease of converting a financial resource into cash without a loss in value.
C)the amount of insurance coverage a person has.
D)a person's inability to pay his or her debt.

Question 57

A personal balance sheet summarizes

A)income and expenses.
B)cash inflows and outflows.
C)assets,net worth,and income.
D)assets,liabilities,and net worth.

Question 58

Which of the following would increase your liquid assets?

A)Buying a new car
B)Making regular deposits to a savings account at your bank
C)Buying rental property
D)Putting more of your salary in a 401(k)

Question 59

Investment assets are all of the following except

A)stocks.
B)automobiles.
C)bonds.
D)rental property.

Question 60

Another term for your wealth calculated by deducting money that you owe from the value of the things you own is

A)gross income.
B)net income.
C)net property.
D)net worth.

Question 61

Judy has cash inflows of $3,000 for the month of June.Her expenses or cash outflows were $4,000.What is her net cash flow? List two options for Judy to meet her financial obligations in June.What is the effect (increase or decrease)of these options on her assets and liabilities?

Question 62

If you sell stock from your portfolio to pay off your car loan,your debt ratio of 0.5 will

A)increase.
B)decrease.
C)stay the same.
D)More data is needed to determine what affect this action will have.

Question 63

The cash in your wallet,your checking account balance,and your savings account comprise your ________ assets.

Question 64

Paying off a credit card with cash will have the following effect on net worth.

A)Increase
B)Decrease
C)No effect
D)Insufficient data

Question 65

If your current debt to asset ratio is 50%,which of the following will increase it?

A)Taking out a home equity loan
B)Buying a car with cash
C)Paying off a student loan
D)Buying stock with cash

Question 66

List three components of your personal balance sheet and two components of your income statement.

Question 67

If Jo Ann had $4,000 in liquid assets and $1,000 in current liabilities,she would have a liquidity ratio of

A)0)25.
B)4)0.
C)1,000.
D)4,000.

Question 68

If you have current assets of $20,000 and current liabilities of $10,000,then you
(a)have a current liquidity ratio of 2.
(b)are in poor shape with a liquidity ratio of 0.5.
(c)may have trouble paying your bills depending on their due dates.
(d)are overextended by $10,000

Question 69

If you save the same dollar amount from each paycheck during your career as your income increases,your savings rate will

A)increase.
B)decrease.
C)stay the same.
D)More data is needed to determine what affect this action will have.

Question 70

Jerry has assets of $200,000,a net worth of $150,000,and an annual income of $100,000.What are Jerry's liabilities?
(a)$100,000
(b)$250,000
(c)$50,000
(d)$450,000

Question 71

Paying cash for an Alaskan cruise would

A)increase assets.
B)decrease assets.
C)increase net worth.
D)decrease liabilities.

Question 72

Which of the following will not increase your liquidity ratio?

A)Purchasing a stereo on credit
B)Paying off a credit card
C)Selling stock for a gain
D)More data needed

Question 73

Jennifer has assets of $100,000 and $10,000 of debt.She could

A)borrow more money,since her debt ratio is low.
B)apply for a bank loan,but expect to be turned down.
C)borrow approximately $200,000 at below market rates.
D)not borrow more money until she paid off her current debt.

Question 74

A low liquidity ratio means

A)that you have very few debts.
B)that liquid assets are increasing faster than current debt.
C)that you probably will have trouble paying your current bills.
D)that you have many liquid assets.

Question 75

In the balance sheet,a(n)________ in assets ________ net worth.

A)increase; increases
B)decrease; increases
C)Both A and D are correct.
D)decrease; decreases

Question 76

If your monthly disposable income equals $1,500 and you currently save $500/month,your savings rate is ________.

Question 77

Determine if the following are liquid assets or household assets by placing an L or H beside the following.
________ Car
________ Home
________ Checking account
________ Furniture
________ Cash
________ Savings account

Question 78

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

A)budget.
B)cash flow statement.
C)balance sheet.
D)bank statement.

Question 79

Your current liquidity ratio is 2.0.If you take money out of your savings account to pay off a credit card your liquidity ratio will

A)increase.
B)decrease.
C)stay the same.
D)More data is needed to determine what affect this action will have.

Question 80

Nancy has $40,000 of annual disposable income and saves $8,000 a year.Her savings rate is

A)5%.
B)12%.
C)17%.
D)20%.