Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
2. Using Financial Statements and Budgets
Copyright Cengage Learning. Powered by Cognero.
Page 1
1. The balance sheet shows an individual’s financial condition as of the time the statement is prepared.
a. True
b. False
2. A budget is a financial report that forecasts an individual’s current income as a percentage of his or her past earnings.
a. True
b. False
3. An income and expense statement provides a measure of financial performance over a period of time.
a. True
b. False
2. Using Financial Statements and Budgets
Copyright Cengage Learning. Powered by Cognero.
Page 2
4. Financial planning is necessary only if an individual earns a lot of money.
a. True
b. False
5. The preparation of an income and expense statement is the first step in the personal financial planning process.
a. True
b. False
6. Knowing how to prepare and interpret personal financial statements is a cornerstone of personal financial planning.
a. True
b. False
2. Using Financial Statements and Budgets
Copyright Cengage Learning. Powered by Cognero.
Page 3
7. Financial plans provide direction to annual budgets.
a. True
b. False
8. If Jenny obtains a loan to purchase a car in June, the loan amount will be included as income for the month of June.
a. True
b. False
9. An individual’s auto loan payments are listed as an expense on the income and expense statement.
2. Using Financial Statements and Budgets
Copyright Cengage Learning. Powered by Cognero.
Page 4
a. True
b. False
10. Amit lists his gross salary in the income portion of his income and expense statement, and he includes his income
taxes and Social Security taxes in the expenses portion.
a. True
b. False
11. Net income should be used when preparing an income and expense statement.
a. True
b. False
2. Using Financial Statements and Budgets
Copyright Cengage Learning. Powered by Cognero.
Page 5
12. It is best to prepare your financial statements at least once a year, ideally when drawing up your budget.
a. True
b. False
13. It is recommended that you maintain a ledger to summarize all of your financial transactions.
a. True
b. False
14. An individual can maintain his or her personal financial statements using spreadsheet software.
2. Using Financial Statements and Budgets
Copyright Cengage Learning. Powered by Cognero.
Page 6
15. A cash budget uses short-term financial goals to help you reach long-term financial goals.
a. True
b. False
16. An individual is said to have a balanced budget when his or her total income for the year equals or exceeds his or her
total expenditures for the year.
a. True
b. False
2. Using Financial Statements and Budgets
Copyright Cengage Learning. Powered by Cognero.
Page 7
17. The best way to balance your annual budget is to increase borrowing to cover shortages.
a. True
b. False
18. Budgeting and record keeping are the same.
a. True
b. False
19. Estimating expenses using actual expenses from previous years and tracking current expenses make the task of
preparing a cash budget easier.
a. True
b. False
2. Using Financial Statements and Budgets
Copyright Cengage Learning. Powered by Cognero.
Page 8
20. A cash budget has value only if you use it, and you keep careful records of actual income and expenses.
a. True
b. False
21. In a budget, “fun money” is for family members to spend as they like.
a. True
b. False
22. Future value calculations to estimate the funds needed to meet a goal take compounding into account.
2. Using Financial Statements and Budgets
Copyright Cengage Learning. Powered by Cognero.
Page 9
a. True
b. False
23. A balance sheet describes your:
a. financial position at a given point in time.
b. financial performance over a period of time.
c. financial performance at a given point in time.
d. financial goals over a specific period of time.
e. financial plans over a period of time.
24. Which of the following statements regarding an individual’s income and expense statement is true?
a. An income and expense statement describes your financial position at a given point in time.
b. An income and expense statement looks forward in time to control spending.
c. An income and expense statement identifies your financial goals.
d. An income and expense statement measures your financial performance over a period of time.
e. An income and expense statement can be used to predict inflation and interest rates.
2. Using Financial Statements and Budgets
Copyright Cengage Learning. Powered by Cognero.
Page 10
25. Which of the following statements regarding a budget is true?
a. It shows the computation of the interest on a loan.
b. It is a schedule of personal investments.
c. It is a list of prepaid expenses.
d. It is a detailed financial report that looks forward.
e. It identifies your assets and liabilities.
26. A budget helps in:
a. setting financial goals.
b. calculating discounted cash flows.
c. giving feedback on how close you are to reaching your long-term financial goals.
d. monitoring and controlling spending.
e. determining the value of assets.
2. Using Financial Statements and Budgets
Copyright Cengage Learning. Powered by Cognero.
Page 11
DATE MODIFIED: 10/19/2018 10:52 AM
27. Which of the following statements regarding budgets is true?
a. Budgets are meant for poor people only.
b. Budgets need software to be effective.
c. Budgets are forward looking.
d. Budgets do not need to be revised.
e. Budgets provide long-term financial forecasts.
28. Which of the following statements regarding budgets is true?
a. Budgets are detailed forward-looking financial reports based on expected income and expenses.
b. Budgets describe a person’s financial position at a given point in time.
c. Budgets measure a person’s financial performance at a given point in time.
d. Budgets describe a person’s financial goals over a specific period of time.
e. Budgets are historical documents that tell an individual how he or she has performed in the past.
29. The three parts of an individual’s balance sheet are his or her:
2. Using Financial Statements and Budgets
Copyright Cengage Learning. Powered by Cognero.
Page 12
30. Which of the following is listed as an asset on an individual’s balance sheet?
a. Bank credit card balances
b. Education loans
c. Outstanding medical bills
d. Checking accounts
e. Leased automobiles
31. When Phil lists his house on his balance sheet, he should record its:
a. actual purchase price.
b. depreciated value.
c. insured value.
d. deferred price.
e. fair market value.
2. Using Financial Statements and Budgets
Copyright Cengage Learning. Powered by Cognero.
Page 13
32. Your _____ is an example of a liquid asset.
a. home
b. car
c. checking account
d. charge account
e. life insurance cash value
33. Sam and his wife Ann purchased a home in Lubbock, Texas, in 1980 for $100,000. Their original home mortgage
payment was $90,000. The house has a current market value of $175,000 and a replacement value of $200,000. They still
owe $55,000 of their home mortgage payment. In their current balance sheet, their home will be reflected as:
a. a $200,000 asset for the replacement value and a $55,000 liability for the outstanding mortgage.
b. a $200,000 asset for the replacement value and a $90,000 liability for the original mortgage.
c. a $175,000 asset for the market value and a $55,000 liability for the outstanding mortgage.
d. a $175,000 asset for the market value and a $90,000 liability for the original mortgage.
e. a $100,000 asset for the purchase price and a $55,000 liability for the outstanding mortgage.
2. Using Financial Statements and Budgets
Copyright Cengage Learning. Powered by Cognero.
Page 14
34. _____ is an example of personal property.
a. Jewelry
b. A mutual fund
c. A corporate bond
d. A charge account
e. A certificate of deposit
35. Which of the following is an example of real property?
a. Jewelry
b. A computer
c. An automobile
d. A garage
e. Office furniture
36. _____ will be listed as a liability on your balance sheet.
2. Using Financial Statements and Budgets
Copyright Cengage Learning. Powered by Cognero.
Page 15
d. The cash value of a life insurance policy
e. An education loan
37. Loans should be recorded as a liability on the balance sheet at their ______ outstanding balance.
a. original
b. year-end
c. average
d. current
e. beginning
38. Which of the following portions of a mortgage loan is recorded as a liability on the balance sheet?
a. Interest only
b. Sum of the interest paid and the outstanding balance
c. Sum of the interest due and the outstanding balance
d. Outstanding principal portion only
e. Principal portion and interest paid
2. Using Financial Statements and Budgets
Copyright Cengage Learning. Powered by Cognero.
Page 16
39. Sonny and Cher have a net worth of $35,000 and total assets of $200,000. If they have credit card purchases of $1,200
and unpaid bills of $1,000, what will their long-term liabilities be?
a. $115,000
b. $140,000
c. $142,200
d. $162,800
e. $165,000
40. You are solvent if your:
a. total liabilities exceed your total assets.
b. total assets exceed your total liabilities.
c. total assets exceed your equity.
d. total liabilities exceed your equity.
e. current liabilities exceed your current assets.
2. Using Financial Statements and Budgets
Copyright Cengage Learning. Powered by Cognero.
Page 17
41. Which of the following statements regarding an individual’s net worth is true?
a. It is the sum of an individual’s current assets and his or her current liabilities.
b. It is the sum of an individual’s take-home pay and his or her payroll taxes.
c. It is the difference between an individual’s current assets and his or her current liabilities.
d. It is the difference between an individual’s monthly income and his or her expenses.
e. It is the difference between an individual’s total assets and his or her total liabilities.
42. If your _____, your net worth on the balance sheet will increase from one period to the next.
a. liabilities increase and assets remain constant
b. liabilities increase and assets decrease
c. assets increase and liabilities remain constant
d. income and liabilities decrease
e. liabilities and expenses increase
2. Using Financial Statements and Budgets
Copyright Cengage Learning. Powered by Cognero.
Page 18
43. The income and expense statement measures your financial:
a. obligations that have been paid.
b. performance over time.
c. current position.
d. liquid assets.
e. long-term objectives.
44. An income statement includes:
a. income, liabilities, and net worth.
b. income, expenses, and cash surplus or deficit.
c. expenses, net worth, and cash surplus or deficit.
d. net worth, surplus, and profit or loss.
e. savings, surplus, and profit or loss.
45. You record _____ on an income and expense statement.
a. the value of your stock portfolio
b. your installment loan balance
c. your checking account balance
d. your cash on hand
e. your charitable payments
2. Using Financial Statements and Budgets
2. Using Financial Statements and Budgets
