Deck 2: Using Financial Statements and Budgets

Question 1

A balance sheet is like a photograph of your financial condition,while an income and expense statement is like a motion picture.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

Approximately 50 percent of Americans prepare a detailed household budget.

Answer 3

False

Question 4

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

Question 5

A budget is a detailed financial forecast.

Question 6

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

Question 7

A house and land are examples of real property.

Question 8

Most types of personal property depreciate shortly after being put into use.

Question 9

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

Question 10

The income and expense statement looks forward in time,while a budget is backward looking.

Question 11

Personal financial statements help you identify potential financial problems.

Question 12

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

Question 13

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

Question 14

The value of assets purchased on credit should be included on the asset side of your personal balance sheet.

Question 15

Investment assets include items such as boats or automobiles.

Question 16

A home and land should be recorded on the personal balance sheet at their original cost.

Question 17

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

Question 18

All assets,regardless of category,should be recorded on your personal balance sheet at their current fair market value.

Question 19

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

Question 20

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

Question 21

An income and expense statement deficit would increase net worth.

Question 22

A budget is an orderly estimate of income and expenditures.

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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

Question 30

The income and expense statement is a summary of actual income earned and expenses made over a specific point of time.

Question 31

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

Question 32

A cash deficit decreases net worth.

Question 33

Total liquid assets is the numerator in the savings ratio formula.

Question 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

The personal balance sheet and income and expense statement should be prepared at least annually.

Question 41

Net worth typically peaks between the ages of 65-74 and then diminishes throughout remaining retirement years.

Question 42

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

Question 43

The savings ratio is calculated by dividing the cash surplus by before-tax income.

Question 44

The three parts of your personal balance sheet are

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

Question 45

The personal balance sheet describes a family's wealth

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

Question 46

Budgeting and record keeping are really the same activity.

Question 47

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

Question 48

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

Question 49

Total net worth is the numerator for the solvency ratio.

Question 50

Net worth typically increases over the life cycle of an individual or family,peaking at about age 55.

Question 51

So long as you can earn interest on your investments,in a strict financial sense,you should always prefer to receive equal amounts of money sooner rather than later.

Question 52

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

Question 53

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 54

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

Question 55

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

Question 56

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

Question 57

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

Question 58

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

Question 59

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

Question 60

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

Question 61

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 62

____ 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 63

Personal 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 64

Net worth is measured by

A)bank card balances.
B)house mortgage balances.
C)amount owed on an automobile loan.
D)assets minus liabilities.
E)insurance premium.

Question 65

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 66

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

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

Question 67

Your ____ is an example of a liquid asset.

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

Question 68

The personal balance sheet equation is

A)Total Assets / Total Liabilities = Net Worth.
B)Total Assets × Total Liabilities = Net Worth.
C)Total Assets − Total Liabilities = Net Worth.
D)Total Assets + Total Liabilities = Net Worth.
E)Total Liabilities − Total Assets = Net Worth.

Question 69

The income and expense statement is specific to

A)one point in time.
B)a specific period of time.
C)last year.
D)next year.
E)none of these.

Question 70

____ is an example of personal property.

A)Jewelry
B)Recreational equipment
C)Corporate bond
D)Charge account balance
E)Both a and b

Question 71

The income and expense statement examines your financial

A)level.
B)performance.
C)position.
D)assets.
E)objectives.

Question 72

Another term sometimes used instead of net worth is

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

Question 73

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 Sally 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 74

The main purpose of a budget is to

A)develop goals.
B)develop a financial plan.
C)give feedback to the plan.
D)monitor and control financial outcomes.
E)revise goals.

Question 75

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

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

Question 76

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 77

A budget is a

A)purchase plan.
B)line of credit.
C)financial statement.
D)detailed financial forecast.
E)set of personal financial objectives.

Question 78

You are solvent if your

A)total liabilities exceed total assets.
B)total assets exceed total liabilities.
C)total assets exceed net worth.
D)total liabilities exceed net worth.
E)none of these.

Question 79

Budgets are

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

Question 80

On the personal 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.