Question 1

Which of the following is not a characteristic of the cash flow statement?
A) It may be the single best measurement of the household's financial performance.
B) It represents how much cash has been generated over a period of time.
C) It includes all household operations that require financial resources.
D) The cash flow statement is fairly difficult to understand and measure.
E) All of the above are characteristics of the cash flow statement.

Accepted Answer

The statement "The cash flow statement is fairly difficult to understand and measure" is not a characteristic of the cash flow statement. The cash flow statement is actually designed to be fairly easy to understand, providing a clear picture of a household's financial performance by showing the amounts of cash generated and used for various purposes over a period of time.

Question 2

A client owns a boat worth $45,000, savings of $500,000, and owes $65,000. What is the client's net worth?
A) $45,000
B) $545,000
C) $480,000
D) $65,000
E) None of the above.

Accepted Answer

The client's net worth is calculated by adding the value of their assets and then subtracting any debts. In this case, the assets are the boat ($45,000) and savings ($500,000), totaling $545,000. The debt is $65,000. So, the net worth is $545,000 - $65,000 = $480,000.

Question 3

The treating of repayment of debt as an expense in the cash flow statement is an example of:
A) The blurring or elimination of the distinctions between assets and liabilities, income and expenses, and cash inflows and outflows.
B) The underestimation of expenses.
C) The overestimation of expenses.
D) None of the above.
E) Both a and b above.

Accepted Answer

E

Question 4

Which assets are not usually placed on balance sheets?
A) Human-related assets.
B) Marketable investments.
C) Human assets.
D) All of the above.
E) Both a and c.

Accepted Answer

Human-related assets (such as employee skills and knowledge) and human assets (such as employee loyalty) are not usually placed on balance sheets as they are intangible assets that are difficult to quantify and value. Marketable investments, on the other hand, are usually included in balance sheets as they are assets that can be easily converted into cash. Therefore, the correct answer is E, as it includes both options regarding human-related and human assets.

Question 5

What is household equity?
A) The household's net worth.
B) The household's assets minus its liabilities.
C) The household's liabilities minus its assets.
D) Both a and b above.
E) None of the above.

Accepted Answer

Household equity refers to the difference between the household's assets and liabilities, which is the same as the household's net worth. Therefore, both options A and B are correct. Option C is incorrect because it refers to negative equity, which is when the household's liabilities exceed its assets.

Question 6

Which of the following are not placed on the left-hand side of the balance sheet?
A) Bonds and bond funds.
B) IRAs.
C) Furniture and fixtures.
D) Household equity.
E) All of the above are placed on the left-had side of the balance sheet.

Accepted Answer

Household equity is not typically placed on the left-hand side of the balance sheet, as it is not a specific asset or liability. The other options listed (bonds and bond funds, IRAs, furniture and fixtures) are all possible assets or liabilities that could be included on the left-hand side of a balance sheet.

Question 7

Which of the following is not applicable to a functional household statement of cash flows?
A) Resembles business cash flow statement.
B) Calculates net cash flows properly.
C) Handles revenues properly.
D) It is simpler than a traditional household statement of cash flows.
E) All of the above are applicable to a traditional household statement of cash flows.

Accepted Answer

A functional household statement of cash flows is not necessarily simpler than a traditional household statement of cash flows. It may be more detailed and resemble a business cash flow statement, handle revenues properly, and calculate net cash flows properly.

Question 8

What are capital expenditures?
A) Additions or subtractions from debt.
B) Outlays on household related matters that provide benefit beyond the current year.
C) The day-to-day financial functions of the household.
D) Cash flows that come from changes in debt.
E) None of the above.

Accepted Answer

Capital expenditures refer to outlays on durable goods or assets that will provide a benefit beyond the current year. These may include investments in a new car, home renovations, or investments in a business. Choice A refers to changes in debt and is irrelevant to capital expenditures. Choice C refers to household budgeting and is also irrelevant to capital expenditures. Choice D refers to cash flows related to debt rather than the outlays themselves. Choice E is a catch-all option and does not provide a relevant answer.

Question 9

Which of the following tells you how you are doing today and sets the stage for any steps that need be taken to alter future activities?
A) Balance sheet.
B) Cash flow statement.
C) Projected cash flow statement.
D) Income statement.
E) None of the above.

Accepted Answer

The answer of Which of the following tells you how...

Question 10

What are financing activities?
A) The cash left over after our operating, capital expenditure, and debt activities.
B) Outlays on household related matters that provide benefit beyond the current year.
C) The day-to-day financial functions of the household.
D) Cash flows that come from changes in debt.
E) None of the above.

Accepted Answer

Financing activities refer to cash flows that come from changes in debt, such as issuing bonds, repaying loans, and paying dividends to shareholders. Therefore, option D is the correct answer. The other options refer to operating and capital expenditure activities (A), household expenses (B), and general financial functions (C), which are not specifically related to financing activities.

Question 11

Financial assets that can be turned into cash are best defined as:
A) Real Estate.
B) Current assets
C) Marketable assets.
D) Household assets.
E) Other assets.

Accepted Answer

Marketable assets are financial assets that can easily be converted to cash, making them highly liquid. This includes stocks, bonds, and other securities that can be sold quickly on the open market.

Question 12

What are savings?
A) Additions or subtractions from debt.
B) Outlays on household related matters that provide benefit beyond the current year.
C) The day-to-day financial functions of the household.
D) Cash flows that come from changes in debt.
E) None of the above.

Accepted Answer

Savings refer to the portion of income not spent on consumption or immediate needs. The options provided do not accurately describe savings, as they relate more to debt management, household spending, and financial operations rather than the act of setting aside resources for future use or investment.

Question 13

Which of the following is not applicable to a traditional household statement of cash flows?
A) Resembles business cash flow statement.
B) Calculates net cash flows properly.
C) Handles revenues properly.
D) It is simpler than a functional household statement of cash flows.
E) All of the above are applicable to a traditional household statement of cash flows.

Accepted Answer

The answer of Which of the following is not applicable...

Question 14

What is a balance sheet?
A) A statement of financial position at a given point in time.
B) A statement of assets that are expected to be or can be converted into cash in the next year.
C) A statement of publicly traded investments.
D) A statement of the future income stream of its wage earners.
E) None of the above.

Accepted Answer

A balance sheet is a financial statement that shows a company's financial position at a specific point in time. It lists the company's assets, liabilities, and equity. It provides an overview of the company's financial health and helps investors and analysts evaluate the company's financial performance. Option B is referring to a statement of cash flows, option C is referring to a statement of changes in equity, and option D is not a common financial statement.

Question 15

What is a traditional cash flow statement?
A) A cash flow statement that groups all inflows and outflows together.
B) A cash flow statement that distinguishes between flows based on operating, capital expenditures, and debt repayment.
C) A cash flow statement that lumps together paydown of debt and interest payments.
D) All of the above.
E) Both a and c above.

Accepted Answer

The answer of What is a traditional cash flow statement?
A)...

Question 16

Pension plans that pay out yearly income upon retirement are an example of:
A) Human-related assets.
B) Marketable investments.
C) Human assets.
D) Current assets.
E) None of the above.

Accepted Answer

The answer of Pension plans that pay out yearly income...

Question 17

What are operating activities?
A) The cash left over after our operating, capital expenditure, and debt activities.
B) Outlays on household related matters that provide benefit beyond the current year.
C) The day-to-day financial functions of the household.
D) Additions or subtractions from debt.
E) None of the above.

Accepted Answer

Operating activities refer to the day-to-day financial functions of a household, such as earning income, paying bills, and managing expenses. Option A refers to cash flow, option B refers to capital expenditures, and option D refers to debt activities, which are not part of operating activities. Option E is not a relevant choice.

Question 18

Which of the following are placed on the right-hand side of the balance sheet?
A) Credit card debts.
B) Taxes outstanding.
C) Mortgage debt.
D) All of the above.
E) None of the above.

Accepted Answer

All of the above (credit card debts, taxes outstanding, mortgage debt) are considered liabilities and are placed on the right-hand side of the balance sheet.

Question 19

Which of the following best defines a functional cash flow statement?
A) A detailed cash flow statement that separates cash flows by type of household activity.
B) A detailed cash flow statement that separates cash flows by household member.
C) A detailed cash flow statement that separates cash flows by discretionary and nondiscretionary expenses.
D) A summary of the household's actual cash flow statement, used to simplify analysis.
E) None of the above.

Accepted Answer

The answer of Which of the following best defines a...

Question 20

Which of the following is not a way though which one can avoid underestimating expenses?
A) Through using software programs detailing records of expenditures.
B) Through avoiding hard copies of records of checks paid and actual bank and investment account cash deposits and withdrawals.
C) Through recording after tax income plus other cash inflows and subtracting the amounts deposited into savings accounts.
D) All of the above are ways through which one can avoid underestimating expenses.
E) None of the above is a way through which one can avoid underestimating expenses.

Accepted Answer

Avoiding hard copies of records can actually result in underestimating expenses as one may forget or not realize certain expenditures. The other choices (A, C, and D) are all ways to avoid underestimating expenses.

Quiz 5: Financial Statements Analysis

Which of the following is not a characteristic of the cash flow statement?

A client owns a boat worth $45,000, savings of $500,000, and owes $65,000. What is the client's net worth?

The treating of repayment of debt as an expense in the cash flow statement is an example of:

Which assets are not usually placed on balance sheets?

What is household equity?

Which of the following are not placed on the left-hand side of the balance sheet?

Which of the following is not applicable to a functional household statement of cash flows?

What are capital expenditures?

Which of the following tells you how you are doing today and sets the stage for any steps that need be taken to alter future activities?

What are financing activities?

Financial assets that can be turned into cash are best defined as:

What are savings?

Which of the following is not applicable to a traditional household statement of cash flows?

What is a balance sheet?

What is a traditional cash flow statement?

Pension plans that pay out yearly income upon retirement are an example of:

What are operating activities?

Which of the following are placed on the right-hand side of the balance sheet?

Which of the following best defines a functional cash flow statement?

Which of the following is not a way though which one can avoid underestimating expenses?