Chapter 2 Questions

Given the following information, calculate the net worth: Assets = $8,000 Cash inflows = $6,000 Cash outflows = $4,500 Liabilities = $5,000

$3,000

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

Discretionary income.

An example of a variable expense is a(n)

Electric bill.

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

Increase their debt ratio.

How long should you keep your most current will?

Permanently.

A budget system that can be kept on notebook paper or accounting paper is called a(n)

Written budget.

When creating a budget, it is important to

"Pay yourself first" by setting aside savings before other expenses are budgeted.

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

Actual spending exceeds planned spending.

Which of the following is a component of money management?

All of these choices are components of money management.

How long should you keep documents relating to investments?

As long as you own these items.

The equation to calculate net worth is

Assets minus Liabilities = Net worth.

Items that you own that have a monetary value are referred to as

Assets.

The current financial position of an individual or family is best presented in the form of a:

Balance sheet.

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

Retirement account such as a 401k

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

Seven years

All of the following are sources of income except

Social Security taxes

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

Social Security taxes

Which of the following is most correct?

Tax records belong in a home file.

Disposable income equals

The amount a person or household has to spend.

A home file should be used to keep

Financial records for current needs.

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

Medical bill

Common stock and bond brokerage statements are an example of a(n) ________ record.

investment

Financial experts recommend monthly savings of ________ of gross income.

5-10%

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

A five-year-old television set

When household budgets must be cut, which of the following categories would be most difficult to cut?

Auto insurance

All of the following are fixed expenses except

Utilities.

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

Vacation property

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

Variable expenses

The main purposes of personal financial statements are to

All of these choices are correct

Another name for a statement of financial position is a

Balance sheet.

Which of the following is a cash inflow?

Income from employment

A personal balance sheet reports

Items owned, amounts owed, and your net worth.

A family with $100,000 in assets and $60,000 of liabilities would have a net worth of

$40,000.

Take-home pay is also called

Net pay.

Which of the following is a liquid asset?

All of these are liquid assets

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

Marriage certificates

Discretionary income equals

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

The amount you would have left if all assets were sold and all debts were paid in full is called your

Net Worth

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

Numbers in the budget are estimates.

Which of the following are two personal financial statements that you create yourself?

Personal balance sheet and cash flow statement

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

Personal balance sheet.

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

Physical budget.

Which of the following is most correct?

Rare coins and stamps belong in a safe deposit box.

The document that would report your current financial position is the

Balance sheet.

The document that would be most useful to plan spending and saving to achieve financial goals is the

Budget.

The document that would tell you what you received and spent over the past month is the

Cash flow statement.

Money management refers to

Day-to-day financial activities

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

Decrease spending by $5 per day

An example of a fixed expense is

Home rental payment.

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

The inability to pay debts when they are due because liabilities far exceed the value of assets is called

Insolvency.

After having established a spending plan, it is important to

Keep track of your actual income and expenses.

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

Loan payment