Chapter 2

A family with $45,000 in assets and $22,000 of liabilities would have a net worth of

B. $23,000

) Rebecca Gladlyn budgeted $345 for a new wardrobe in June. She actually spent $378. What is her budget variance?

B. $33 deficit

How long should you keep documents relating to investments?

B. As long as you own them

Which of the following are considered to be the primary personal financial statements?

B. Balance sheet and cash flow statement

Disposable income equals

B. Take-home pay

A budget deficit would result when a person's or family's

D. Actual expenses are greater than planned expenses.

Which of the following situations describes a person who could be insolvent?

D. Assets $40,000; liabilities $45,000

The equation to calculate net worth is:

D. Assets - liabilities = net worth

A personal balance sheet presents

D. Items owned and amounts owed.

A current ratio of 2 means:

E. $2 of liquid assets are available for every $1 in current liabilities

All of the following are fixed expenses except

E. Electric bill

An example of a variable expense is

E. Electric bill

The amount you would have if everything of value would be sold and all debts would be paid in full.

B. Net worth.

Which of the following appears on a cash flow statement?

B. Payments for variable expenses & loan payment

A budget that involves envelopes, folders or containers to hold money or slips of paper is called a

B. Physical budget

Which of the following is NOT a main purpose of a budget?

B. Spend your money without care

When creating a personal balance sheet, which of the following is a real estate asset?

B. Vacation property

A budget that can be kept on notebook paper or budgeting paper is called a A. Mental budget

C. Written budget

Rebecca Gladlyn budgeted $1050 for housing and utilities in July. She actually spent $962. What is her budget variance?

D. $88 surplus

Given the following information, calculate the debt payments ratio: Liabilities $24,000 Liquid assets $4,400 Monthly credit payments $300 Monthly savings $260 Net worth $72,000 Current liabilities $1,100 Take-home pay $1,800 Gross income $3,000 Monthly expenses $1,540

D. 16.67 percent

Which of the following ratios indicates the amount of a person's earnings that goes for payments for credit cards, auto loans, and other debt (except mortgage)?

D. Debt payments ratio

Discretionary income equals

D. Money left over after paying for housing, food, and other necessities

An example of a fixed expense is

D. Mortgage

When creating a budget, which of the following statements is true?

D. Numbers in the budget are estimates.

Which of the following is a cash inflow?

D. Receive a paycheck

When creating a personal balance sheet, which of the following is an investment asset?

D. Retirement account

The number of personal financial records a household has to organize may seem overwhelming. How long should you keep copies of your tax returns?

D. Seven years

Which of the following financial documents would most likely be stored in a safe deposit box?

D. marriage certificates

Patrick Guitman has a net worth of $156,000 and liabilities of $167,000. What are his total assets?

E. $323,000

Given the following information, calculate the net worth: Assets = $5000 Cash inflows = $4500 Cash outflows = $2000 Liabilities = $1000

E. $4000

Given the following information, calculate the savings ratio: Liabilities $24,000 Liquid assets $4,400 Monthly credit payments $300 Monthly savings $260 Net worth $72,000 Current liabilities $1,100 Take-home pay $1,800 Gross income $3,000 Monthly expenses $1,540

E. 8.67 percent

Which of the following is NOT a component of money management?

E. All of the above are components of money management

Items with value are referred to as

E. Assets.

Which of the following categories would be most difficult to cut from a household budget?

E. Auto insurance

When creating a personal balance sheet, which of the following is a current liability?

E. Charge account

All of the following are ways that households can increase their net worth except:

E. Increase their debt ratio

The number of personal financial records a household has to organize may seem overwhelming. How long should you keep documents relating to the purchase of real estate?

E. Indefinitely

How long should you keep your most current will?

E. Permanently

Which of the following is NOT a liquid asset?

E. Retirement investments

Which of the following ratios shows the relationship between gross income and money not spent?

E. Savings ratio

When creating a budget, it is important to:

E. Set aside savings before other expenses are budgeted.

All of the following are sources of income except

E. Social security taxes

Which of the following is a deduction to determine take-home pay?

E. Social security taxes

The main purposes of personal financial statements are to:

E. These are all correct

Given the following information, calculate the debt ratio percentage: Liabilities $24,000 Liquid assets $4,400 Monthly credit payments $300 Monthly savings $260 Net worth $72,000 Current liabilities $1,100 Take-home pay $1,800 Gross income $3,000 Monthly expenses $1,540

A. 33.3

When creating a personal balance sheet, which of the following is considered to be a personal possession asset?

A. A five-year-old television set

The document that would be most useful to track current value of investment accounts is

A. Balance sheet

Given the following information, calculate the liquidity ratio: Liabilities $24,000 Liquid assets $4,400 Monthly credit payments $300 Monthly savings $260 Net worth $72,000 Current liabilities $1,100 Take-home pay $1,800 Gross income $3,000 Monthly expenses $1,540

C. 2.86

Financial experts recommend a debt/payments ratio of less than ____ of take-home pay.

C. 20%

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

C. Balance sheet.

The document that would be most useful to track planned spending patterns for the next month is

C. Budget

Which of the following will increase the net worth of a household?

C. Decrease spending by $5 per day

Another name for take-home pay is

C. Disposable income

Which of the following ratios indicates the number of months in which living expenses can be paid if an emergency arises?

C. Liquidity ratio

Which of the following is most correct?

C. Tax records belong in a home file

After the budget is created, it is important to

C. Track spending and identify variances

A home file should be used for storing

B. Financial records for current needs.

A debt ratio of 0.5 indicates:

B. For every dollar of net worth, debt equals $0.50

The inability to pay debts when they are due is called:

B. Insolvency

Money management refers to

B. Day-to-day financial activities.

The money left over after paying for housing, food, and other necessities is called

B. Discretionary income

Another name for a statement of financial position is a

A. Balance sheet.

Which of the following ratios shows the relationship between debt and net worth?

A. Debt ratio

The statement that includes liquid assets, real estate, personal possessions, and investment assets is known as a

A. Personal balance sheet.

Which of the following is most correct?

A. Rare coins and stamps belong in a safe deposit box

The difference between the amount budgeted and the actual amount received or spent is called the

A. Variance

A broker statement is an example of a(n) ____________ record.

A. investment

Given the following information, calculate the current ratio: Liabilities $24,000 Liquid assets $4,400 Monthly credit payments $300 Monthly savings $260 Net worth $72,000 Current liabilities $1,100 Take-home pay $1,800 Gross income $3,000 Monthly expenses $1,540

B. 4

Financial experts recommend a monthly savings ratio of at least ____ of gross income. A. 0%

B. 5 - 10%

The document that would be most useful to track spending patterns for the past few months is

B. Cash flow statement

Which of the following ratios indicates that liquid assets are available to pay liabilities for a household?

B. Current ratio