Deck 2: Using Financial Statements and Budgets

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

The income statement includes information on your latest paycheck.

Question 5

Assets listed on your balance sheet must have monetary value.

Question 6

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

Question 7

Jewelry,furniture and computers are examples of personal property.

Question 8

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

Question 9

Investment assets include items such as boats or automobiles.

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

One could use statements from their various financial institutions to help complete a balance sheet.

Question 15

A budget is a detailed financial forecast.

Question 16

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

Question 17

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

Question 18

Most types of personal property depreciate,or decline in value,shortly after being put into use.

Question 19

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

Question 20

A house and land are examples of financial property.

Question 21

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

Question 22

A cash surplus will typically produce a positive savings ratio.

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

An income statement deficit would increase net worth.

Question 28

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

Question 29

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

Question 30

A cash deficit decreases net worth.

Question 31

A budget is an orderly estimate of income and expenditures.

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

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

Question 42

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

Question 43

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

Question 44

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

Question 45

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

Question 46

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

Question 47

Budgeting and record keeping are really the same activity.

Question 48

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

Question 49

One should quickly make important financial decisions soon after a financial shock,such as death or divorce.

Question 50

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

Question 51

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

Question 52

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

Question 53

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

Question 54

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

Question 55

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

Question 56

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

Question 57

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

Question 58

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

Question 59

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

Question 60

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 61

Most personal financial software is available at a reasonable cost.

Question 62

Budgets are

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

Question 63

Your ____ is an example of a liquid asset.

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

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

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 are true?

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 66

Another term sometimes used instead of net worth is

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

Question 67

Personal financial software is widely available,much of which is free.

Question 68

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

Question 69

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 70

____ is an example of an personal asset.

A) Jewelry
B) Recreational equipment
C) Corporate bond
D) Charge account balance
E) Auto insurance premium

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) sale price.
E) fair market value.

Question 72

____ 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 73

The three parts of your 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 74

____ 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 75

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 76

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 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

The 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 79

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 80

On the 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.