Personal Finance 11th Edition by E. Thomas Garman – Test Bank
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Sample Test
Chapter 3—Financial Statements, Tools, and Budgets
TRUE/FALSE
1. Financial
planning focuses prmarily on spending wisely.
ANS: F
financial planning also includes the management of risk and
plans for capital accumulation
PTS:
1
DIF:
easy
REF: p. 65
2. Financial
planning begins by acquiring a good job that provides a person with enough
extra income to manage.
ANS: F
financial planning begins by examining values and setting
financial goals.
PTS:
1
DIF: moderate
REF: p. 65
3. Financial
planning is the process of developing and implementing short-term plans to
achieve financial objectives.
ANS: F
financial planning is long-term.
PTS:
1
DIF:
easy
REF: p. 67
4. Financial
planning is a single, customized plan regarding a person’s financial affairs.
ANS: F
financial planning involves a series of plans.
PTS:
1
DIF:
easy
REF: p. 65
5. Financial
planning is only for the rich.
ANS: F
people of all income and wealth levels benefit from doing
financial planning.
PTS:
1
DIF:
easy
REF: p. 65
6. Values
have little impact on financial goals.
ANS: F
personal values are the starting point for setting financial
goals.
PTS:
1
DIF:
easy
REF: p. 65
7. It is
not necessary that your values be consistent with your financial and lifestyle
goals.
ANS: F
financial and lifestyle goals should be consistent with your
values.
PTS:
1
DIF:
easy
REF: p. 65
8. Values
are fundamental beliefs regarding what consumer goods are worth.
ANS: F
values are your beliefs about what is important, desirable and
worthwhile.
PTS:
1
DIF:
easy
REF: p. 67
9. The
concept of “pay myself first,” saving and investing before you pay other
expenses, is a characteristic of successful financial managers.
ANS:
T
PTS:
1
DIF: moderate
REF: p. 67
10.
Financial planning begins by examining one’s values.
ANS:
T
PTS: 1
DIF:
easy
REF: p. 65
11.
Specific financial goals drive the creation of budgets.
ANS:
T
PTS:
1
DIF:
easy
REF: p. 83
12.
The major purpose of budgeting is to reach your financial goals.
ANS:
T
PTS:
1
DIF:
easy
REF: p. 83
13.
The major purpose of budgeting is to make sure bills get paid.
ANS: F
the major purpose of budgeting is to reach financial goals.
PTS:
1
DIF:
easy
REF: p. 83
14.
Your goal in financial planning is to manage your income and
wealth in such as way that your goals are met in a suitable manner.
ANS:
T
PTS: 1
DIF:
easy
REF: p. 65
15.
Paying off debts is an example of a financial goal even though
it does not involve a direct purchase.
ANS:
T
PTS:
1
DIF: moderate
REF: p. 67
16.
Specific goals should be measurable, attainable, relevant, and
time-related.
ANS:
T
PTS:
1
DIF:
easy
REF: p. 67
17.
Among the intermediate-term goals for capital accumulation is
having a fund for emergencies.
ANS:
T
PTS:
1
DIF:
easy
REF: p. 83
18.
Reducing the number of bank and credit accounts that each
partner brings into the marriage can save money on account fees.
ANS: T
PTS:
1
DIF: moderate
REF: p. 69
19.
A balance sheet describes an individual’s financial progress
over a period of time, generally a year.
ANS: F
a balance sheet shows an individual’s financial status on a
specified date.
PTS:
1
DIF: moderate
REF: p. 69
20.
A cash-flow statement summarizes transactions that have taken
place over a specific period of time.
ANS:
T
PTS:
1
DIF: moderate
REF: p. 69
21.
Monetary assets include cash and near-cash items that can be
readily converted to cash.
ANS:
T
PTS:
1
DIF:
easy
REF: p. 70
22.
Tangible assets are assets whose primary purpose is to provide
maintenance of a lifestyle.
ANS:
T
PTS:
1
DIF: moderate
REF: p. 70
23.
In general, tangible assets do not depreciate in value over
time.
ANS: F
most tangible assets do depreciate over time.
PTS:
1
DIF:
easy
REF: p. 70
24.
Successful financial planning requires identifying the one best
investment asset for an individual, then putting all of the individual’s
surplus into that asset.
ANS: F
successful financial planning involves using several investment
assets.
PTS:
1
DIF: moderate
REF: p. 70
25.
Both IRAs and non-residential real estate property are
investment assets.
ANS:
T
PTS:
1
DIF:
easy
REF: p. 70
26.
The balance sheet serves as an assessment of assets and
liabilities at fair market value as of a specified date.
ANS:
T
PTS: 1
DIF: moderate
REF: p. 70
27.
For most people, the only way to increase net worth is to spend
less than their income; people must save and invest.
ANS:
T
PTS:
1
DIF: moderate
REF: p. 71-72
28.
A balance sheet shows flows of income in and expenses out of
your finances for a given period of time.
ANS: F
the balance sheet shows the value of your assets and liabilities
as of a specific date.
PTS:
1
DIF:
easy
REF: p. 70
29.
Short-term liabilities are obligations to be paid off within one
year.
ANS:
T
PTS:
1
DIF:
easy
REF: p. 71
30.
The liability section of a balance sheet would include money
owed to a doctor or a lawyer but would not include money owed to a friend.
ANS: F
all monies owed are included
PTS:
1
DIF: moderate
REF: p. 70-71
31.
A person who has a negative net worth is technically insolvent.
ANS:
T
PTS:
1
DIF:
easy
REF: p. 71
32.
A cash-flow statement for a previous year would show whether you
were able to live within your income.
ANS: T
PTS:
1
DIF:
easy
REF: p. 72
33.
A cash-flow statement shows flows of income in and expenses out
of your finances for a given period of time.
ANS:
T
PTS:
1
DIF:
easy
REF: p. 72
34.
A cash-flow statement shows the value of your assets and
liabilities as of a specific date.
ANS: F
the cash-flow statement shows flows of income in and expenses
out of your finances for a given period of time.
PTS:
1
DIF:
easy
REF: p. 72
35.
Keeping track of all income and expenses is very important to
achieving your financial objectives.
ANS:
T
PTS:
1
DIF: easy
REF: p. 94
36.
Savings set aside can be categorized as both fixed and variable
expenses.
ANS:
T
PTS:
1
DIF: moderate
REF: p. 74
37.
It is usually easy to reduce a fixed expense.
ANS: F
fixed expenses are difficult to reduce.
PTS:
1
DIF:
easy
REF: p. 74
38.
The surplus section on an individual’s cash-flow statement is
similar to net profit for a business.
ANS: T
PTS:
1
DIF: moderate
REF: p. 75
39.
Most people keep track of their finances on a cash basis rather
than on an accrual basis.
ANS:
T
PTS:
1
DIF: moderate
REF: p. 72
40.
A surplus demonstrates that you are managing your financial
resources successfully and do not have to use savings or borrow to make
financial ends meet.
ANS:
T
PTS:
1
DIF: moderate REF:
p. 75
41.
Financial ratios are numerical calculations designed to make
assessments of financial conditions more complex.
ANS: F
financial ratios help make more sense of your financial
situation.
PTS:
1
DIF: moderate
REF: p. 77
42.
Liquidity is the speed and ease with which an asset can be
converted to cash.
ANS:
T
PTS:
1
DIF:
easy
REF: p. 77
43.
Many experts recommend that people should have assets equal to
one year’s expenses in emergency cash reserves.
ANS: F
financial experts tend to recommend a three-month emergency fund
although some recommend up to six months.
PTS:
1
DIF: moderate
REF: p. 77
44.
The liquidity ratio reveals how many months it would take to
convert all assets into cash.
ANS: F
this ratio relates only to monetary assets and how long they
would last should income stop.
PTS:
1
DIF: moderate
REF: p. 77
45.
You can use the liquidity ratio to determine the number of
months that you could continue to meet your expenses using only your monetary
assets should all income cease.
ANS:
T
PTS:
1
DIF:
easy
REF: p. 77
46.
A family with two income earners will always need a greater
amount of cash reserves than a family with one earner.
ANS: F
the need for cash reserves relates to the amount of income and
not whether it comes from one or multiple sources.
PTS:
1
DIF: moderate
REF: p. 77
47.
By analyzing financial statements, a person can assess his or
her financial condition and progress.
ANS:
T
PTS:
1
DIF: easy
REF: p. 69
48.
Households dependent on the income from a self-employed person
may need a larger emergency cash reserve than others.
ANS:
T
PTS:
1
DIF: moderate
REF: p. 77
49.
The asset-to-debt ratio compares total assets with total
liabilities and is a broad measure of a household’s financial liquidity.
ANS:
T
PTS:
1
DIF: moderate
REF: p. 77
50.
A person is insolvent when he or she doesn’t have enough current
income to pay all of his or her current bills.
ANS: F
insolvent refers to not having enough assets to cover your
liabilities¾a negative net worth.
PTS:
1
DIF: moderate
REF: p. 71
51.
A low asset-to-debt ratio is a positive indicator of financial
well-being.
ANS: F
a high asset-to-debt ratio is desirable.
PTS:
1
DIF: moderate
REF: p. 77
52.
The debt service-to-income ratio provides a view of total debt
burden of an individual or family by comparing the dollars spent on gross
annual debt repayments with gross annual income.
ANS:
T
PTS:
1
DIF: moderate
REF: p. 77
53.
A debt service-to-income ratio of 0.36 or less is considered
manageable for most families.
ANS:
T
PTS:
1
DIF: moderate
REF: p. 77
54.
A debt service-to-income ratio of 0.36 or less indicates that
disposable income is adequate to make debt repayments.
ANS: F
a ratio of 0.36 or less indicates that gross income is adequate
to make debt repayments.
PTS:
1
DIF: moderate
REF: p. 77
55.
The debt payments-to-disposable-income ratio is gross income
divided by monthly nonmortgage debt repayments.
ANS: F
the ratio is monthly nonmortgage debt payments divided by
monthly disposable income.
PTS:
1
DIF:
easy
REF: p. 78
56.
Disposable personal income is the amount of take-home pay
remaining after all deductions are withheld for taxes, insurance, union dues,
and other.
ANS:
T
PTS:
1
DIF:
easy
REF: p. 78
57.
The investment assets-to-total assets ratio compares the value
of your investment assets with your total assets.
ANS:
T
PTS:
1
DIF:
easy
REF: p. 78
58.
Keeping good records is a prerequisite for effective financial
planning.
ANS:
T
PTS:
1
DIF:
easy
REF: p. 94
59.
Original deeds and mortgage papers should be stored in one’s
home file.
ANS: F
such records are best kept in a safe-deposit box.
PTS:
1
DIF: moderate
REF: p. 80
60.
Safe-deposit boxes take two keys to open, and the financial
institution where the box is located keeps one of these keys.
ANS:
T
PTS:
1
DIF: moderate
REF: p. 79
61.
Budgeting is narrower in scope than overall financial planning
as it is primarily concerned with projecting future income and expenditures
over a period of time.
ANS:
T
PTS:
1
DIF: moderate
REF: p. 82-83
62.
Budgeting gives one control over his or her finances.
ANS:
T
PTS:
1
DIF:
easy
REF: p. 82
63.
Once budget estimates are determined; one should not make any
changes in the budget for at least one year.
ANS: F
budget estimates should be revised as needed to reflect reality.
PTS:
1
DIF:
easy
REF: p. 85-87
64.
When setting up your budget for the month, it is useful to use
prior months’ cash-flow statements to set your estimates for income and
spending for the upcoming month..
ANS:
T
PTS:
1
DIF:
easy
REF: p. 83
65.
Budget estimates are the projected dollar amounts in a budget
that one plans to receive or spend during the period covered by the budget.
ANS:
T
PTS:
1
DIF:
easy
REF: p. 85
66.
To make realistic estimates of income and expenses, reliable
financial information is critical. The more accurate the estimates, the more
effective the budget.
ANS:
T
PTS:
1
DIF:
easy
REF: p. 85
67.
Discretionary income is the money left over once the necessities
of living are covered.
ANS: T
PTS:
1
DIF:
easy
REF: p. 85
68.
Discretionary income is the money people use to pay for the
necessities of life.
ANS: F
discretionary income is the money left over once the necessities
of living are covered.
PTS:
1
DIF: moderate
REF: p. 85
69.
Reconciling budget estimates includes reconciling conflicting
needs and wants.
ANS:
T
PTS:
1
DIF: easy
REF: p. 85
70.
The best method to control overspending is to regularly monitor
unexpended balances in each budget classification.
ANS:
T
PTS:
1
DIF: moderate
REF: p. 91
71.
A budget variance is the difference between one’s actual
expenditure with budgeted amount for a specific category.
ANS:
T
PTS:
1
DIF: moderate
REF: p. 93
72.
A net surplus in your monthly budget can not be carried forward
to the next month.
ANS: F
a net surplus can be carried forward so that irregular expenses
can be managed.
PTS:
1
DIF:
easy
REF: p. 94
73.
When a college student saves all summer so that he or she has money
available to live on during the school year; he or she is using a revolving
savings fund.
ANS:
T
PTS:
1
DIF: moderate
REF: p. 87
74.
After the budgeting period has ended, you need to add up the actual
income received and expenditures made during that period.
ANS:
T
PTS:
1
DIF:
easy
REF: p. 94
75.
Using credit cards to “balance” your budget is a proper
budgeting tool.
ANS: F
uses of credit cards are expenditures and not income.
PTS:
1
DIF: moderate
REF: p. 75
76.
A budget variance is the difference between the amount budgeted
and the actual amount spent or received.
ANS: T
PTS:
1
DIF:
easy
REF: p. 93
77.
When budgeting, recordkeeping is the process of recording the
sources and amount of dollars earned and spent.
ANS:
T
PTS:
1
DIF:
easy
REF: p. 94
78.
The use of automated teller machines is recommended as a valid
method of controlling expenditures.
ANS: F
simply using an ATM is not a good method of controlling
expenditures unless the uses and purposes are recorded in one’s check register.
PTS:
1
DIF:
easy
REF: p. 89
MULTIPLE CHOICE
79.
Financial plans should include objectives and goals in which of
the following areas?
|
a. |
Spending |
|
b. |
Risk management |
|
c. |
Capital accumulation |
|
d. |
All of these |
ANS:
D
PTS:
1
DIF:
easy
REF: p. 65-67
80.
The three broad areas of financial plans include financial plans
for
|
a. |
spending. |
|
b. |
risk management. |
|
c. |
capital accumulation. |
|
d. |
All of these. |
ANS:
D
PTS:
1
DIF:
easy
REF: p. 64-65
81.
The basis for financial planning is (are)
|
a. |
a budget. |
|
b. |
personal values. |
|
c. |
a balance sheet. |
|
d. |
goals. |
ANS:
B
PTS:
1
DIF:
easy
REF: p. 67
82.
Values are
|
a. |
attitudes. |
|
b. |
needs. |
|
c. |
beliefs. |
|
d. |
wants. |
ANS:
C
PTS:
1
DIF: easy
REF: p. 67
83.
Which of the following is the best example of a well-stated
financial goal?
|
a. |
Buy a $3,000 computer in 18 months |
|
b. |
Purchase a three-bedroom home in five
years |
|
c. |
Buy a $2,000 stereo |
|
d. |
Pay off your credit cards as soon as
possible |
ANS: A
as it contains the specifics of what, how much and when.
PTS:
1
DIF:
difficult REF: p.
67-68
84.
Which of the following goals is most clearly stated?
|
a. |
Save enough for a down payment on a house
in five years |
|
b. |
Save $1,000 in one year for a vacation
to San Diego |
|
c. |
Pay off all credit card balances |
|
d. |
Pay cash for a car |
ANS: B
as it contains the specifics of what, how much and when.
PTS:
1
DIF: moderate
REF: p. 67-68
85.
The first step in the budgeting process is
|
a. |
organizing. |
|
b. |
setting financial goals. |
|
c. |
decision making. |
|
d. |
evaluating. |
ANS:
B
PTS:
1
DIF: moderate
REF: p. 67-68
86.
Hillary and Justin Palmer have a long-term goal of saving $6,000
for a down payment on a new vehicle they would like to buy in three years.
Which of the following is a short-term goal that is most consistent with this
long-term goal?
|
a. |
Buy a new car every two years |
|
b. |
Save $2,000 this year |
|
c. |
Save $3,000 this year |
|
d. |
Accumulate $1,500 for a trip to Florida
this year |
ANS:
B
PTS:
1
DIF: moderate
REF: p. 67-68
87.
Financial goals
|
a. |
should be explicitly stated. |
|
b. |
should be consistent with your values. |
|
c. |
all of these. |
|
d. |
none of these. |
ANS:
C
PTS:
1
DIF:
easy
REF: p. 67-68
88.
A successful financial plan includes
|
a. |
specified values that underlie the
plan. |
|
b. |
explicitly stated financial goals. |
|
c. |
logical and consistent financial
strategies. |
|
d. |
all of these. |
ANS:
D
PTS:
1
DIF: moderate
REF: p. 65-68
89.
The primary purpose of setting long-term financial goals is to
help
|
a. |
measure financial success or failure. |
|
b. |
provide direction for overall financial
planning. |
|
c. |
acquire great wealth. |
|
d. |
achieve a comfortable retirement. |
ANS:
B
PTS:
1
DIF: moderate
REF: p. 65
90.
Financial goals should state
|
a. |
the “what” of the goal. |
|
b. |
the “how much” of the goal. |
|
c. |
the “when” of the goal. |
|
d. |
all of these. |
ANS:
D
PTS:
1
DIF:
easy
REF: p. 67
91.
To set the stage for financial success, one must
|
a. |
save money. |
|
b. |
start budgeting. |
|
c. |
identify financial values and goals. |
|
d. |
cut up all credit cards. |
ANS:
C
PTS:
1
DIF:
easy
REF: p. 67
92.
The two most useful
financial statements are ____ and ____.
|
a. |
federal tax returns; income and expense
statements |
|
b. |
cash-flow statements; balance sheets |
|
c. |
balance sheets; wills |
|
d. |
wills; federal tax returns |
ANS:
B
PTS:
1
DIF: moderate
REF: p. 69
93.
A balance sheet includes ____, ____, and ____.
|
a. |
income; expenses; net worth |
|
b. |
assets; expenses; liabilities |
|
c. |
income; liabilities; net worth |
|
d. |
assets; liabilities; net worth |
ANS:
D
PTS:
1
DIF: moderate
REF: p. 69
94.
Which of the following provides information about a person’s
financial condition at a specific point in time?
|
a. |
Balance sheet |
|
b. |
Federal tax return |
|
c. |
Income and expense statement |
|
d. |
All of these |
ANS:
A
PTS:
1
DIF: moderate
REF: p. 69
95.
A cash-flow statement is also known as a(n) ____ statement.
|
a. |
income and expense |
|
b. |
net worth |
|
c. |
taxable income |
|
d. |
asset-and-liability |
ANS:
A
PTS:
1
DIF: easy
REF: p. 69
96.
Rita and Jose Hernandez want to assess their financial progress
over the next few years. They have decided to take a reading of their status
every New Year’s Day. Which financial statement would they prepare each year?
|
a. |
Will |
|
b. |
Cash-flow statement |
|
c. |
Balance sheet |
|
d. |
Federal income tax return |
ANS: C
as the balance sheet will tell them if their net worth is
growing from year to year.
PTS:
1
DIF:
difficult REF: p.
69
97.
Assets on the balance sheet are valued at their
|
a. |
fair market value. |
|
b. |
original purchase price. |
|
c. |
replacement cost. |
|
d. |
sentimental value. |
ANS:
A
PTS:
1
DIF: moderate
REF: p. 70
98.
Which of the following types of assets is primarily used for
emergencies, maintenance of living expenses, savings, and payment of bills?
|
a. |
Monetary |
|
b. |
Tangible |
|
c. |
Investment |
|
d. |
Capital |
ANS:
A
PTS: 1
DIF:
easy
REF: p. 70
99.
Which of the following types of assets is primarily used for the
maintenance of a lifestyle?
|
a. |
Monetary |
|
b. |
Tangible |
|
c. |
Investment |
|
d. |
Capital |
ANS: B
PTS:
1
DIF: moderate
REF: p. 70
100.
Which of the following is classified as a tangible asset?
|
a. |
Motorcycle |
|
b. |
Cash |
|
c. |
Real estate investment |
|
d. |
Pension plan |
ANS: A
PTS:
1
DIF: moderate
REF: p. 70
101.
Which of the following would be included in the category of
assets known as monetary assets?
|
a. |
Money market accounts |
|
b. |
Stocks |
|
c. |
Bonds |
|
d. |
Real estate |
ANS:
A
PTS:
1
DIF:
easy
REF: p. 70
102.
Which of the following is classified as an investment asset?
|
a. |
Certificates of deposit |
|
b. |
Money market accounts |
|
c. |
Primary residence |
|
d. |
Stocks |
ANS:
D
PTS:
1
DIF: moderate
REF: p. 70
103.
Vincent and Paula Farelli have decided to pay off their $875
MasterCard debt by taking $875 out of their money market savings account. This
transaction will
|
a. |
increase their net worth on their
balance sheet. |
|
b. |
not change their net worth on their
balance sheet. |
|
c. |
decrease the surplus on their income
and expense statement. |
|
d. |
not change the surplus on their income
and expense statement. |
ANS: B
since it involves both a reduction in an asset and a reduction
in a liability.
PTS:
1
DIF:
difficult REF: p.
70-71
104.
Which of the following would be classified as a short-term
liability?
|
a. |
Next month’s rent |
|
b. |
Credit card debt |
|
c. |
Education loans |
|
d. |
A car loan |
ANS:
B
PTS:
1
DIF:
easy
REF: p. 71
105.
Which of the following would be classified as a long-term
liability?
|
a. |
Credit card debt |
|
b. |
Bank card debt |
|
c. |
Education loan balance |
|
d. |
All of these |
ANS:
C
PTS:
1
DIF: moderate
REF: p. 71
106.
The formula for calculating net worth is
|
a. |
income minus expenses. |
|
b. |
assets minus liabilities. |
|
c. |
income minus liabilities. |
|
d. |
assets minus expenses. |
ANS:
B
PTS:
1
DIF: moderate
REF: p. 71
107.
To construct a balance sheet, you need to compile dollar values
for your assets and liabilities. Good sources from which to begin are
|
a. |
checkbook or savings account records. |
|
b. |
receipts of various payments. |
|
c. |
investments. |
|
d. |
all of these. |
ANS:
D
PTS:
1
DIF: moderate
REF: p. 79
108.
Jason and Larissa would like to accumulate three times their
monthly expenses in monetary assets. They currently have $2,800 in their money
market account, and their monthly expenses are $4,500. How much more do they
need in their money market account to reach their goal?
|
a. |
$13,500 |
|
b. |
$3,900 |
|
c. |
$10,700 |
|
d. |
$1,700 |
ANS: C
(3 x $4,500) – $2,800
PTS:
1
DIF: moderate
REF: p. 70
109.
Cindy Estrada is applying for a loan and the bank has asked her
for some financial information. Use the following data to calculate Cindy’s net
worth.
|
Checking account balance |
$1,300 |
|
American Express credit card balance |
$650 |
|
Money market account |
$2,200 |
|
House |
$255,000 |
|
Mortgage loan balance |
$140,000 |
|
Automobile |
$20,000 |
|
Cash on hand |
$575 |
|
Auto loan balance |
$8,700 |
|
a. |
$121,025 |
|
b. |
$129,725 |
|
c. |
$130,375 |
|
d. |
$131,025 |
ANS: B
$1,300 + $2,200 + $255,000 + $20,000 + $575 – $650 – $140,000 –
$8,700
PTS: 1
DIF: moderate
REF: p. 70-71
110.
Maria Gomez would like to learn more about her financial
situation. Help her calculate her current net worth.
|
Annual salary |
$42,000 |
|
U.S. savings bond |
$1,500 |
|
Money market fund |
$4,000 |
|
Checking account balance |
$760 |
|
MasterCard balance |
$2,800 |
|
Value of automobile |
$15,000 |
|
Outstanding auto loan |
$6,750 |
|
a. |
$3,460 |
|
b. |
$10,210 |
|
c. |
$11,710 |
|
d. |
$53,710 |
ANS: C
$1,500 + $4,000 + $760 + $15,000 – $2,800 – $6,750
PTS: 1
DIF:
difficult REF: p.
70-71
111.
A surplus on your cash-flow statement indicates that you are
|
a. |
using savings to pay current expenses. |
|
b. |
managing your financial resources
successfully. |
|
c. |
borrowing money to pay current
expenses. |
|
d. |
both using savings to pay current
expenses and borrowing money to pay current expenses. |
ANS:
B
PTS:
1
DIF:
difficult
REF: p. 72
112.
Mack and Amy are making regular contributions of $200 a month
from their salaries to a money market savings account. These transactions will
|
a. |
increase their net worth on their
balance sheet. |
|
b. |
decrease the surplus on their cash-flow
statement. |
|
c. |
not change either their net worth or
the surplus. |
|
d. |
both increase their net worth on their
balance sheet and decrease the surplus on their income and expense statement. |
ANS: D
as the practice increases their monetary assets and shows up as
a savings amount in their expenditure column of their cash-flow statement.
PTS:
1
DIF: moderate
REF: p. 69-75
113.
Which of the following is a characteristic of a cash-flow
statement?
|
a. |
It covers a period of time, usually one
month or one year. |
|
b. |
It shows if you were able to live
within your income for the period covered. |
|
c. |
The statement includes three sections:
income, expenses, and surplus (or deficit). |
|
d. |
All of these. |
ANS:
D
PTS:
1
DIF: easy
REF: p. 72-75
114.
Child support received, Social Security benefits, and public
assistance are all examples of
|
a. |
expenses. |
|
b. |
assets. |
|
c. |
income. |
|
d. |
both assets and income. |
ANS: C
all are flows of money into one’s finances.
PTS: 1
DIF: moderate
REF: p. 73
115.
Rent and insurance payments are examples of
|
a. |
short-term liabilities. |
|
b. |
variable expenses. |
|
c. |
fixed expenses. |
|
d. |
long-term liabilities. |
ANS:
C
PTS: 1
DIF: moderate
REF: p. 74
116.
Canceled checks provide a source of information for the value of
|
a. |
assets. |
|
b. |
liabilities. |
|
c. |
income. |
|
d. |
expenditures. |
ANS:
D
PTS: 1
DIF:
easy
REF: p. 73-74
117.
Food, clothing, and entertainment are examples of
|
a. |
short-term liabilities. |
|
b. |
variable expenses. |
|
c. |
fixed expenses. |
|
d. |
long-term liabilities. |
ANS: B
PTS:
1
DIF: moderate
REF: p. 74
118.
A net surplus at the end of the month could be
|
a. |
used to pay down credit card debt. |
|
b. |
invested in a retirement account. |
|
c. |
carried forward to the next month. |
|
d. |
all of these. |
ANS:
D
PTS:
1
DIF:
easy
REF: p. 75
119.
Paul is a college student who has the following financial
information. He would like your help in figuring his surplus for last year.
|
Income from summer job |
$5,000 |
|
Support from parents |
$3,500 |
|
Scholarship |
$1,200 |
|
Savings account balance |
$1,250 |
|
Variable expenses |
$3,500 |
|
Fixed expenses |
$4,000 |
|
Current liabilities |
$800 |
What is Paul’s surplus?
|
a. |
$2,650 |
|
b. |
$2,200 |
|
c. |
$1,250 |
|
d. |
$1,000 |
ANS: B
$5,000 + $3,500 + $1,200 – $3,500 – $4,000
PTS:
1
DIF:
difficult REF: p.
73-76
120.
The formula for calculating surplus (loss) is
|
a. |
total income minus total expenses. |
|
b. |
assets minus liabilities. |
|
c. |
total income minus liabilities. |
|
d. |
assets minus total expenses. |
ANS:
A
PTS:
1
DIF:
easy
REF: p. 76
121.
Julie and Alex have compiled their financial records and would
like to know if they are living within their level of income. What is their
surplus?
|
Salaries |
$48,000 |
|
Interest income |
$1,200 |
|
Food expenses |
$10,500 |
|
Rent |
$14,400 |
|
Clothing costs |
$3,600 |
|
Auto expenses |
$4,200 |
|
Recreation |
$4,800 |
|
Miscellaneous expenses |
$3,400 |
|
a. |
$7,100 |
|
b. |
$8,300 |
|
c. |
$9500 |
|
d. |
$12,500 |
ANS: B
$48,000 + $1,200 – $10,500 – $14,400 – $3,600 – $4,200 – $4,800
– $3,400
PTS:
1
DIF: moderate
REF: p. 73-76
122.
Wendy Wilson, a successful graduate of State University, is
currently employed in a position paying $37,500 a year. Wendy’s annual living
expenses are only $33,000 so she has accumulated $4,600 in monetary assets and
$27,000 in investment assets since her graduation. Use the liquidity ratio to figure
how long Wendy could pay expenses if she were to lose her job.
|
a. |
Less than three weeks |
|
b. |
About two months |
|
c. |
Approximately seven months |
|
d. |
Approximately eleventh months |
ANS: A
$33,000 / 12 / $4,600 = 0.60 months
PTS: 1
DIF:
difficult REF: p.
76
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