Finance chapter 2

If expected expenditures for food were $1,000 while the actual food costs were $750, what would be the variance?

$250 favorable

Time _________of money calculations can be used to calculate progress toward achieving different financial goals.

value

An example of a variable expense is a(n):

Electric bill.

True or false: Discretionary income is the same as net pay.

False

True or false: Insolvency is defined as having adequate liquid assets to pay off all owed debts.

False

Which one of the following is an example of a variable expense?

Groceries

Which of the following are not liquid assets?

Real estate

When preparing a personal balance sheet, which of the following statements should you not do?

Subtract assets from liabilities to determine net worth

Which of the following provide accurate explanations of net worth?

The amount you would have if you sold the assets and paid off the liabilities Assets minus liabilities

Budgets allow you to live within your income while increasing your chances of achieving your financial goals.

True

Net worth is found by subtracting liabilities from assets. (Hint: Be sure to read the sentence carefully before answering.)

True

People should prepare a personal balance sheet on a periodic basis to evaluate financial progress.

True

The steps to prepare a budget include setting financial goals, estimating expected income, budgeting for emergency funds and expenses, recording actual expenses, calculating variances, and evaluating.

True

True or false: The statement of cash flow is a summary of cash receipts and payments for a given period.

True

Which types of expenses fluctuate by household situation, time of year, and economic conditions?

Variable

The rule of thumb when saving for ______ fund is to set aside three to six months of living expenses.

an emergency

If assets are $1,500,000 and liabilities are $850,000, then the net worth is:

assets - liabilities = networth assets = liabilities + net worth 1,500,000-850,000 = $650,000.

A personal sheet also called a net worth statement or statement of financial position, reports what you own and what you owe.

balance

An organized system of financial records provides a basis for reducing credit card usage.

false

Birth certificates, wills, and Social Security data should be kept for up to seven years.

false

Flexible payments that change from month to month are called __________ expenses.

variable

If Mary has cash inflow for the year of $120,000 with cash outflows of $135,000, her cash flow statement would show a:

$15,000 deficit

True or false: Take-home pay is the same as discretionary income.

False

If Joe and Mary Smith have money market accounts of $100,000, real estate holdings of $300,000, loans of $25,000, and investments of $10,000, what would their total assets be?

$410,000

Medical bills, credit card balances, and home equity loans are all examples of current liabilities.

False

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

discretionary

True or false: In determining income, you should include all expected commissions.

False

If Tom and Liz Gomes have liquid assets of $200,000, real estate of $350,000, home improvement loans of $250,000, and investments of $30,000, what would their total assets be?

$580,000

Where should easy-to-replace documents such as resumes and lists of financial goals be stored?

personal computer system, home filing system

To measure changes taking place in your financial situation, you probably need to calculate financial ______.

ratios

True or false: Most Americans do not have adequate amounts of money set aside for emergencies.

True

Which of the following are normally fixed expenses?

Installment loan payments Rent Mortgage payments

Which of the following are characteristics of good financial goals?

Measurable Have a definite time frame Realistic to achieve

Discretionary income equals:

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

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

debt ratio

In an organized system of financial records, credit card records belong in a safe deposit box.

false

Money management refers to annual financial activities necessary to manage personal economic resources.

false

A _________will help you spend money wisely and have more control of your life.

budget

Which of the following appears as a cash outflow on a cash flow statement?

loan payment

Financial ratios are guidelines for:

measuring changes in your financial situation

True or false: When cash outflows, or expenses, exceed cash inflows, or income, there will be a cash surplus.

False

Which of the following is not a variable expense?

Rent Reason: Rent is a fixed payment each month.

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

Retirement account such as a 401K

Which of the following statements are true about a balance sheet that you are reviewing on 1/15/2021 that shows an "as of" date of 12/31/2020 and assets of $600,000 and liabilities of $425,000?

The net worth is $175,000 as of 12/31/2020.

According to the text, which of the following could likely be intermediate-term goals for a single college student?

Attend graduate school Pay-off student loans in five years or less Take a vacation to Europe

Another name for a statement of financial position is a:

Balance sheet

The document that would report your current financial position is the:

Balance sheet

The length of time to hold onto records varies according to the type of record. How long should birth certificates, wills, and social security records be retained?

They should be kept permanently.

True or false: Financial goals should be specific, realistic, measurable, have a time frame, and imply the type of action to be taken.

True

How is a cash surplus (or deficit) on a statement of cash flows calculated?

Cash inflows (receipts) less cash outflows (expenditures) during a given period of time

Take-home pay is:

earnings (salary, wages, and commissions) after deducting for taxes and other items

Which of the following are the common sources of income for most of the people?

Government payments Wages, salaries, and commissions Self-employment income Gifts and grants Amounts received from pensions

How long should documents related to the purchase and sale of real estate be kept?

Indefinitely

Net worth is the amount owed to others.

False

According to the text, which of the following could likely be a long-term goal for a married couple with no children?

Buy a retirement home

Rebecca Wilson budgeted $1,200 for housing and utilities in July. She actually spent $1,160. What is her budget variance?

$40 surplus

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

Assets $40,000; liabilities $55,000

Which of the following provide accurate explanations of net worth?

Assets minus liabilities The amount you would have if you sold the assets and paid off the liabilities

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

Increase their debt ratio.

A current ratio of 2 means:

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

Tommy White has the following financial items on his balance sheet: $10,000 of liquid assets, $15,000 of personal property, $300,000 of real estate, $5,000 of current liabilities, and $120,000 of home mortgages. What is his net worth?

$200,000

The majority of Americans do not set aside an adequate amount for which of the following?

Emergencies

How often should you prepare a balance sheet?

Every three to six months

Financial documents that you may need quick access to should be kept in a safe deposit box.

False

True or false: Total assets minus only current liabilities equal net worth. Be sure to read the sentence carefully before answering.

False

The inability to pay debts when they are due is called

Insolvency

True or false: A savings plan is an important factor if you want your money to grow.

True

The main purpose of a personal financial statements is to:

Achieve all of the choices

A successful budget should be:

An adequate emergency fund is usually 3-6 months of living expenses

How you save is not as important as making regular savings ______.

deposits

Cash flow is the ______ of cash during a given period of time.

inflow and outflow

True or false: Your net worth is money available for you to use.

False

A cash ____________ results when cash inflows (receipts) are greater than cash outflows (expenditures).

surplus

All of the following will increase net worth, except:

taking $1,000 cash from your liquid assets and paying down $1,000 of debt.

When evaluating your budget, you should review and perhaps revise your financial goals and budget allocations and review your financial progress.

true

A successful budget should be:

realistic flexible well planned clearly communicated

Expenses that do not vary from month to month are referred to as __________ expenses.

A job

Arrange the steps involved in the process of budgeting in the correct order of occurrence. (Place the first step at the top.)

1. Set financial goals 2. Estimate income 3. Budget an emergency fund and savings 4. Budget fixed expenses 5. Budget variable expenses 6. Record spending amounts 7. Review spending and savings patterns

Debts due within a short time, usually the next 12 months, would be classified as liabilities, while debts that will come due in a period beyond the next 12 months would be categorized as - liabilities.

Blank 1: current, short term, short-term, or shortterm Blank 2: long or noncurrent Blank 3: term

When you calculate a budget ________ , you determine the difference between the actual amount spent or received and the amount budgeted.

Blank 1: variance, variances, variation, or variable

Which of the following should not be considered when determining available income?

Bonuses

Which of the following assets are liquid assets?

Cash value of life insurance Savings account Money market account Cash

After categorizing assets and calculating total assets, what do you do next when preparing the balance sheet?

Classify liabilities, total the liabilities, and calculate net worth

Which of the following are not liquid assets? Multiple choice question.

Real estate

In addition to being well planned, budgeting should be which of the following?

Realistic, flexible, and clearly communicated

Which of the following are normally fixed expenses?

Rent Mortgage payments Installment loan payments

Which of the following can help you to achieve your financial goals?

Save coins in a jar at the end of each day for deposit at a future time into a savings account. Write a check each payday to deposit into a savings account. Have savings deducted and automatically deposited into a savings account from each paycheck. Save between 5 percent and 10 percent of each paycheck.

A home file should be used to keep:

financial records for current needs

Expenses that do not vary from month to month are referred to as __________ expenses.

fixed

Cash______is the actual inflow and outflow of cash during a given time period.

flow

The most common overspending areas to evaluate when revising your goals and budget allocations are entertainment and ______.

food

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

indefinitely

Current (short-term) liabilities include:

medical bills and insurance premiums.

A cash flow statement shows a summary of cash_____and payments for a given period such as a month or a year.

receipts

A cash _______ results when cash inflows (receipts) are greater than cash outflows (expenditures).

surplus