Question 1

If your total assets equal $87,000 and your total liabilities equal $10,000,your solvency ratio is:
A)11.5%.
B)13.0%.
C)77.0%.
D)87.0%.
E)88.5%.

Accepted Answer

The answer of If your total assets equal $87,000 and...

Question 2

I should record _____ on my income and expense statement for the period of January 1 to June 30.
A)an $800 refrigerator I bought on credit on May 30
B)an outstanding education loan account
C)jewelry I purchased with an arrangement to pay later
D)my checking account balance
E)the groceries I bought and paid for in June

Accepted Answer

The answer of I should record _____ on my income...

Question 3

You are solvent if your:
A)total liabilities exceed your total assets.
B)total assets exceed your total liabilities.
C)total assets exceed your equity.
D)total liabilities exceed your equity.
E)current liabilities exceed your current assets.

Accepted Answer

Solvency refers to the ability of a company to meet its long-term financial obligations. In order to be solvent, the total assets of the company must exceed its total liabilities. Therefore, option B is the correct choice.

Question 4

If your liquid assets equal $15,000 and your current debts equal $50,000,your liquidity ratio is:
A)30%.
B)70%.
C)143%.
D)233%.
E)333%.

Accepted Answer

The liquidity ratio is calculated by dividing liquid assets by current debts. In this case, $15,000 / $50,000 = 0.3 or 30%.

Question 5

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 will their long-term liabilities be?
A)$115,000
B)$140,000
C)$142,200
D)$162,800
E)$165,000

Accepted Answer

The answer of Sonny and Cher have a net worth...

Question 6

A cash surplus on an income and expense statement prepared on a cash basis indicates that:
A)the net worth is equal to zero.
B)investments are less than the cash balance.
C)the payments on debts are not met.
D)the total expense is less than the total income.
E)income and expense are equal.

Accepted Answer

A cash surplus on an income and expense statement prepared on a cash basis means that the total income received is more than the total expense paid out. This indicates that the organization has more cash available than it needs for its immediate expenses, which can be used for investments or paying off debts. It does not indicate that the net worth is equal to zero, investments are less than the cash balance, or that income and expense are equal.

Question 7

A cash budget helps you:
A)monitor and control your finances.
B)analyze your financial position.
C)calculate your fixed assets ratio.
D)calculate your investment turnover ratio.
E)analyze the use of debt in a capital structure.

Accepted Answer

A cash budget helps individuals or businesses monitor and control their finances by providing a projection of expected cash inflows and outflows for a specific period. It helps to identify potential cash shortages or surpluses, and allows for proper financial planning and decision-making. The other choices are unrelated to the purpose of a cash budget.

Question 8

Which of the following is a stage in preparing a cash budget?
A)Calculating financial ratios
B)Estimating expenses
C)Calculating depreciation expenses
D)Finalizing the balance sheet
E)Preparing the bank reconciliation report

Accepted Answer

Estimating expenses is a crucial stage in preparing a cash budget as it helps in determining the outflows of cash and managing the available cash balance. The other options listed are not directly related to the preparation of a cash budget.

Question 9

Which of the following is true of an individual's net worth?
A)It is the sum of an individual's current assets and his or her current liabilities.
B)It is the sum of an individual's take-home pay and his or her payroll taxes.
C)It is the difference between an individual's current assets and his or her current liabilities.
D)It is the difference between an individual's monthly income and his or her expenses.
E)It is the difference between an individual's total assets and his or her total liabilities.

Accepted Answer

Net worth is the difference between an individual's total assets (including physical possessions, investments, and accounts) and his or her total liabilities (debts and financial obligations). This represents the value an individual would have remaining if they were to sell all of their assets and pay off all of their debts.

Question 10

If your _____,your net worth on the balance sheet will increase from one period to the next.
A)liabilities increase and assets remain constant
B)liabilities increase and assets decrease
C)assets increase and liabilities remain constant
D)income and liabilities decrease
E)liabilities and expenses increase

Accepted Answer

If your assets increase and liabilities remain constant, it means you have more resources (e.g. cash, inventory, property) that can be used to generate income or be sold for profit. This results in an increase in net worth, which is calculated as assets minus liabilities.

Question 11

An income statement includes:
A)income,liabilities,and net worth.
B)income,expenses,and cash surplus or deficit.
C)expenses,net worth,and cash surplus or deficit.
D)net worth,surplus,and profit or loss.
E)savings,surplus,and profit or loss.

Accepted Answer

An income statement includes income, expenses, and cash surplus or deficit. It shows the revenues and expenses of a company for a specific period of time and the resulting profit or loss. Liabilities, net worth, savings, and surplus are not typically included in an income statement.

Question 12

Mike and Teresa have a monthly gross income of $5,000.They pay $1,000 per month toward taxes and $2,000 per month toward various loans.What is their debt service ratio?
A)20%
B)30%
C)40%
D)50%
E)60%

Accepted Answer

The debt service ratio is calculated by dividing the total monthly debt payments (in this case, $2,000 for loans) by the monthly gross income (in this case, $5,000) and multiplying by 100 to get a percentage. So,

Debt service ratio = ($2,000 / $5,000) x 100 
= 0.4 x 100 
= 40%

Therefore, the best choice is (C) 40%.

Question 13

You record _____ on an income and expense statement.
A)the value of your stock portfolio
B)your installment loan balance
C)your checking account balance
D)your cash on hand
E)your charitable payments

Accepted Answer

An income and expense statement records your earnings and expenditures over a specific period, including charitable payments as an expense.

Question 14

Assume that your total income for the current year is $35,000.Your total expenses including taxes of $5,000 is $30,000.Your savings ratio is:
A)7.5%.
B)10.0%.
C)12.5%.
D)13.3%.
E)16.7%.

Accepted Answer

The answer of Assume that your total income for the...

Question 15

Which of the following ratios indicates your ability to meet current debt payments with existing assets that can be converted to cash readily?
A)Solvency
B)Liquidity
C)Cash
D)Savings
E)Debt service

Accepted Answer

Liquidity ratios, such as the current ratio and quick ratio, indicate a company's ability to pay off current debt obligations with its current assets, which are assets that can be converted to cash readily. Solvency ratios, such as the debt-to-equity ratio, indicate a company's ability to meet long-term debt obligations. Cash, savings, and debt service are not ratios used to evaluate a company's ability to meet debt payments.

Question 16

When estimating income for the income and expense statement,you should:
A)use gross income.
B)include expected pay increases.
C)adjust expenses for inflation.
D)use net income less capitalized interest.
E)use the income received and earned only.

Accepted Answer

The answer of When estimating income for the income and...

Question 17

If your statement of income and expense prepared on a cash basis shows a deficit,you have:
A)increased your debts.
B)liquidated your investments.
C)increased your savings.
D)taken a cash loan on your insurance.
E)sold some securities.

Accepted Answer

A deficit on a cash basis statement of income and expense means that your expenses exceeded your income and you were not able to cover all your costs with the cash on hand. This indicates that you had to either use credit (increase your debts), sell assets (liquidate investments or sell securities), or take a cash loan (from insurance or other sources) to cover your expenses. The only option listed that implies using credit is choosing A) increased your debts.

Question 18

A savings ratio calculated from an income and expense statement represents the:
A)percentage of gross income saved.
B)ability to cover immediate debt when there is an interruption in income.
C)percentage of after-tax income saved.
D)percentage of tax-deferred income earned annually.
E)percentage of asset value salvaged.

Accepted Answer

A savings ratio calculated from an income and expense statement represents the percentage of after-tax income saved. This indicates how much of the income is being saved after accounting for expenses and taxes.

Question 19

The income and expense statement examines your financial:
A)obligations.
B)performance.
C)position.
D)assets.
E)objectives.

Accepted Answer

The income and expense statement, also known as the income statement or profit and loss statement, shows the financial performance of a business or individual over a period of time by comparing their income against their expenses. This analysis allows one to assess how well they are doing financially, which falls under the category of financial performance. Therefore, the correct choice is B.

Question 20

Jacques's total monthly loan payments amount to $1,020,while his gross income is $3,000 per month.What is his debt service ratio?
A)34%
B)43%
C)50%
D)75%
E)82%

Accepted Answer

The debt service ratio is calculated by dividing the total monthly loan payments by the gross monthly income and then multiplying by 100 to get a percentage. So, for Jacques, it's ($1,020 / $3,000) * 100 = 34%.

Quiz 2: Using Financial Statements and Budgets

If your total assets equal $87,000 and your total liabilities equal $10,000,your solvency ratio is:

I should record _____ on my income and expense statement for the period of January 1 to June 30.

You are solvent if your:

If your liquid assets equal $15,000 and your current debts equal $50,000,your liquidity ratio is:

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 will their long-term liabilities be?

A cash surplus on an income and expense statement prepared on a cash basis indicates that:

A cash budget helps you:

Which of the following is a stage in preparing a cash budget?

Which of the following is true of an individual's net worth?

If your _____,your net worth on the balance sheet will increase from one period to the next.

An income statement includes:

Mike and Teresa have a monthly gross income of $5,000.They pay $1,000 per month toward taxes and $2,000 per month toward various loans.What is their debt service ratio?

You record _____ on an income and expense statement.

Assume that your total income for the current year is $35,000.Your total expenses including taxes of $5,000 is $30,000.Your savings ratio is:

Which of the following ratios indicates your ability to meet current debt payments with existing assets that can be converted to cash readily?

When estimating income for the income and expense statement,you should:

If your statement of income and expense prepared on a cash basis shows a deficit,you have:

A savings ratio calculated from an income and expense statement represents the:

The income and expense statement examines your financial:

Jacques's total monthly loan payments amount to $1,020,while his gross income is $3,000 per month.What is his debt service ratio?