Finance chapter 2
Which of the following ratios shows the relationship between debt and net worth?
debt ratio
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
True or false: Your net worth is money available for you to use.
False
Which one of the following is an example of a variable expense?
Groceries
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 are not liquid assets?
Real estate
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
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
A _________will help you spend money wisely and have more control of your life.
budget
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
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 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
Flexible payments that change from month to month are called __________ expenses.
variable
Expenses that do not vary from month to month are referred to as __________ expenses.
A job
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
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
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
Current (short-term) liabilities include:
medical bills and insurance premiums.
True or false: When cash outflows, or expenses, exceed cash inflows, or income, there will be a cash surplus.
False
Which of the following are normally fixed expenses?
Installment loan payments Rent Mortgage payments
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 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.
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
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
True or false: Most Americans do not have adequate amounts of money set aside for emergencies.
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
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
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
A successful budget should be:
realistic flexible well planned clearly communicated
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
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