Business 130 Personal Finances: Chapter Two

How often should you prepare a balance sheet?

Every three to six months

Personal balance sheets and the cash flow statement come from financial institutions, business, or the government. True or False

False

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

True

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

variance

If Joe and Mary Smith have money market accounts of $100,000, real estate holdings of $30,000, loans of $25,000, and investments of $10,000, what would their total assets be?

$410,000 Reason: money market accounts, real estate holdings, and investments are assets; their value totals 410K

Which of the following are the major money management activities? Creating and implementing a plan for savings Preparing personal financial statements Storing and Maintaining personal financial records Investing in speculative stocks

Creating and implementing a plan for savings Preparing personal financial statements Storing and maintaining personal financial records

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

False, reason: the balance sheet equation is total assets less total liabilities.

True or False, Medical bills, credit card balances, and home equity loans are all examples of current liabilities?

False: reason, home equity loans are considered long-term liabilities.

Expenses that do not vary month to month are referred to as ______ expenses

Fixed

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

Food

Which one of the following is an example of a variable expense? Car payments House payment Groceries Loan payment

Groceries

Which of the following can help you to achieve your financial goals? Buy long-term bonds with deductions form every other paycheck Have savings deducted and automatically deposited into a savings account from each paycheck Save between 5% and 10% of each pay check Save coins in a jar at the end of each day for deposit at a future time into a saving account Write a check each payday to deposit into a savings account Invest 40% of your annual salary in a new sports car

Have savings deducted and automatically deposited into a savings account from each paycheck. Save between 5% and 10% of each paycheck. 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.

Which of the following are normally fixed expenses? Food Utilities-w/o a fixed payment plan Installment loan Payments Rent Recreation expenses Mortgage payments Clothing

Installment payments Rent Mortgage payments

Invoices, credit card statements, ________ policies and tax forms are the basis of financial record keeping and personal economic choices.

Insurance

Which of the following are characteristics of good financial goals? Measurable Realistic to achieve Unspecific target amount Have a definite time frame

Measurable Realistic to achieve Have a definite time frame

Which combination of liabilities would be classified as current on a balance sheet? Automobile loans, education loans, mortgages, and home improvement loans. Medical bills, income tax payments owed, insurance premiums to be paid next month, and student loans. Medical bills, charge accounts, home mortgages, and automobile loans Medical bills, income tax payments, insurance premiums to be paid next month, and charge accounts.

Medical bills, income tax payments owed, insurance premiums to be paid next month, and charge accounts.

Money management refers to the daily financial activities necessary to manage current _________ economic resources while working toward long-term financial security.

Personal

Place the following steps of budgeting in the correct order. Set financial goals estimate expected income Allocate an emergency found and savings Budget known expenses Budget estimated expenses Record spending amounts and evaluate revisions

Set financial goals estimate expected income Allocate an emergency found and savings Budget known expenses Budget estimated expenses Record spending amounts and evaluate revisions

Which of the folllowing are the major money management activities? Storing and maintaining personal financial records Preparing personal financial statements Creating and implementing a plan for savings Investing in speculative stocks

Storing and maintaining personal financial records Preparing personal financial statements Creating and implementing a plan for savings

When preparing a personal balance sheet, which of the following statements should you not do? List and total all items of value Subtract liabilities from assets to determine net worth List and total all amounts owed to others Subtract assets from liabilities to determine net worth

Subtract assets from liabilities to determine net worth

Which of the following statements are true about a balance sheet that you are reviewing on 1/15/21 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

The Balance sheet equation is:

Total Assets - Total Liabilities = Net Worth

Money management involves financial activities necessary to manage current personal economic resources, while working for the achievement of long-term financial security. True or False

True

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

True, reason: You can learn to live within your income and achieve financial goals through budgeting.

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

True, reason: the evaluation stage includes reviewing your financial progress and revising financial goals and budgets allocations as needed.

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

True, reason: the requirements in the question are necessary for a good financial goal.

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, reason: these are the steps in the budgeting process

Time______ of money calculations can be used to calculate progress toward achieving different financial goals.

Value

Which type of expense fluctuates by household situation, time of year, and economic conditions?

Variable

A _________ will help you live spend money wisely and have more control of your life.

budget

The amount you have left after you have paid for housing, food, and other necessities is called________ income.

discretionary

Take-home pay is: earning (salary, wages, and commissions) after deducting for taxes and other items the same as discretionary income total of salary, wages, and commissions earned during a pay period The same as cash flow

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

Cash Flow is the_______ of cash during a given period of time. inflow and investments outflow inflow and outflow

inflow and outflow

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

$250 favorable

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 Reason: Liquid assets, real estate, and investments are assets; their value is $200,000+350,000+30,000 = $580,000.

Joe borrowed $ 100k ( a four-year loan at 10% interest) on January 2, 2020. During the course of the year, he paid back $30K on that debt. What would his December 31, 2020 balance sheet show for this debt? Interest is an expense, and not part of the loan balance. Approximately $10,000 because that is the amount of interest owed. $ 100,000 because the balance sheets shows what was originally barrowed. Approximately $25,000 because that is what will be paid over the next 12 months $70,000 because the balance sheet should report what is owed on the balance sheet date.

$70,000 because the balance sheet should report what is owed on the balance sheet date.

Which of the following statements is true? An adequate emergency fund is 9-12 months take-home pay An emergency fund should be invested in stocks An adequate emergency fund is usually 3-6 months of living expenses An adequate emergency fund is usually 3-6 months gross income

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

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

An emergency fund: Reason: A good rule of thumb for most people when saving for an emergency fund is to set aside three to six months of living expenses.

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

Balance

Which of the following is a financial statement that reports what an individual or a family owns and owes? Cash flow sheet Income Statement Balance Sheet

Balance sheet

Which of the following assets are liquid assets? cash savings account cash value of life insurance money market account retirement accounts home equity

Cash Savings account Cash value of life insurance Money market account

The two documents considered to be part of personal financial statements include the personal balance sheet and which of the following? Funding Sheet Cash Flow Statement MACRS Statement

Cash flow statement

After categorizing assets and calculating total assets, what do you do next when preparing the balance sheet? Calculate net worth and subtract it from liabilities Total the liabilities and then calculate net worth Classify liabilities, total the liabilities, and calculate net worth

Classify liabilities, total the liabilities, and calculate net worth

Purchase receipts, insurance policies, tax forms, and which of the following are the basis of financial recordkeeping? Credit Card Statements Birth Certificates Marriage License

Credit Card Statements

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

False, reason: discretionary income is income left over after necessities have been paid

True or False, Discretionary income is the same as net pay.

False, reason: discretionary income is what you have left after you have paid for housing, food, and other necessities. Disposable income is the same as net pay

Which of the following are not liquid assets? Real estate Checking account Savings account Cash

Real Estate

The text covers _________ main money management activities.

Three

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

True, reason: Cash flow statements show the inflows ( receipts) and outflows (payments).

True or False: Net worth is found by subtracting liabilities form assets?

True, reason: Net worth is found by subtracting liabilities from assets

True or False: Net worth is found by subtracting liabilities from assets.

True, reason: Net worth is found by subtracting liabilities from assets.

Cash _______ is the actual inflow and outflow of cash during a given time period.

flow