Personal Finance Chap 2

Take-home pay is:

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

Discretionary income is the same as net pay.

false

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

food

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

True

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

True

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

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

Take-home pay is the same as discretionary income.

false

Which of the following is a financial statement that reports what an individual or a family owns and owes?

balance sheets

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

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

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

Personal balance sheet and the cash flow statement come from financial institutions, businesses, or the government.

False

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

False

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

False

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

Most Americans do not have adequate amounts of money set aside for emergencies.

true

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

true

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

variab;e

Arrange the steps involved in the process of budgeting in the correct order of occurrence. (Place the first step at the top.) Set financial goals. Estimate income. Budget an emergency fund and savings. Budget fixed expenses. Budget variable expenses. Record spending amounts. Review spending and savings patterns.

yuh

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

groceries

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.

The statement of cash flow is a summary of cash receipts and payments for a given period.

thei e

The text covers ______ main money management activities.

three

A savings plan is an important factor if you want your money to grow.

true

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

Bonuses

Which of the following are not liquid assets?

Real estate

Insolvency is defined as having adequate liquid assets to pay off all owed debts.

False

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

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

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

$250 favorable

Your net worth is money available for you to use.

fase

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

$650,000.

Joe borrowed $100,000 (a four-year loan at 10 percent interest) on January 2, 2020. During the course of the year, he paid back $30,000 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.

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

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

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

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

-Personal computer system -Home filing system

Personal financial statements provide information about your current financial position and present a summary of your income and spending. Which of the following statements does NOT describe a main purpose of personal financial statements?

All four answers describe the purpose of personal financial statements.

Which of the following statements is true?

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

The length of time to hold onto records varies according to the type of record. How long should records pertaining to property and investments be retained?

As long as you own the assets

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

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

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

Blank 1: insolvency

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

The two documents considered to be part of personal financial statements include the personal balance sheet and which of the following?

Cash flow statement

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

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

Purchase receipts, insurance policies, tax forms, and which of the following are the basis of financial recordkeeping?

Credit card statements

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

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

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

Have savings deducted and automatically deposited into a savings account from each paycheck. Save between 5 percent and 10 percent 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 characteristics of good financial goals?

Measurable Have a definite time frame Realistic to achieve

Which combination of liabilities would be classified as current on a balance sheet?

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

Which of the following is a key purpose of personal financial statements?

Providing data for preparing tax forms

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 Installment loan payments Mortgage payments

Which of the following assets are liquid assets?

Savings account Money market account Cash value of life insurance Cash

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 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.

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.

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

True

Items that are difficult to replace should be kept in a safe deposit box so that they won't be destroyed if there is a fire or flood in the home.

True

For most people, the main source of income is money received from which of the following?

a job

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

deposites

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

discretionary

cash +____ is the actual flor and outlod of cahs during a given tie

dlow

In determining income, you should include all expected commissions.

false

Expenses that do not vary from 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 ______.

fodo

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

income

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

inflow and outflow

The inability to pay debts when they are due is called

insolvency

Invoices, credit card statements, ________ policies, and tax forms are the basis of financial record keeping and personal economic choices. (Enter one word per blank.)

insurance

Financial ratios are guidelines for:

measuring changes in your financial situation

Current (short-term) liabilities include:

medical bills and insurance premiums.

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

personal

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

ratios

A successful budget should be:

realistic flexible well planned clearly communicated

Which of the following is not a variable expense?

rent

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

surplus

The rule of thumb when saving for an emergency fund is to set aside:

three to six months of living expenses

The balance sheet equation is:

total assets minus total liabilities equal net worth

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

true

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

true