Finance Final Exam: Ch 6

C.The ratio tells Ed and Marta that approximately 6.15% of their​ after-tax income is available for savings after expenses are paid.
Ojai and​ Kaya’s current ratio is 4.00 B.Ojai and​ Kaya’s current ratio is 4.00. The ratio tells Ojai and Kaya that their monetary assets could pay their current expenses 4.00times. ​ However, this ratio is not truly accurate since it does not include the monthly student loan payment. The student loan is not considered a current liability.
The (lower) the number of wage earners in the​ household, the (less) credit​ available, and the (lower) the stability of​ employment; the higher the emergency fund should be.
Insolvency results from earning more than you spend false
Net income is used in calculating one’s net worth false
According to the Keown​ book, the median net worth for American families in which the head of the household is less than 35 years old is below​ $10,000 true
The house that you are leasing from a landlord is an example of a tangible asset that you would list on your balance sheet false
Current liabilities are those that can typically be paid in full within 12 months true
Before you can hope to achieve your financial goals, you will need to first measure your current financial health and develop a plan and a budget true
The first section of a balance sheet represents your assets
Assets that you purchase for the purpose of accumulating wealth to satisfy your financial goals are called investment assets
​________ can be more than or less than the price you paid for a given​ asset, depending on what others are willing to pay for that asset today. fair market value
The term “fair market value” refers to what an asset could be sold for today
Your financial situation is insolvent when your assets are less than your liabilities
Which of the following items would not be included on a balance sheet? mortgage payment paid
Items on the balance sheet that represent amounts owed to others are termed liabilities
A physical asset such as a high-definition, flat-screen TV or a Harley Davidson motorcycle is called a tangible asset
The interest charge on your credit card statement should be listen on your personal income statement as a variable expense true
Your net worth, or your general level of financial worth, is found by subtracting your liabilities from your assets
Practical uses of an income statement include all of the above A.knowing where your money is going.B.spotting problem areas of overspending.C.determining whether you are spending more than you earn.D.determining if money is available for saving or investing.
An expenditure that you can control over time and that you can manage is a variable expenditure
How would an income statement help you create a financial plan? determines whether you are earning more than you spend
Which of the following would be included on a personal income statement? making a payment to your credit card company
A statement that records where your money has come from and where it has gone over some period of time is called an income statement
An expenditure over which you have no control, are obligated to make, and is generally at a constant level each month is called a ……….. expenditure fixed
Using financial ratios helps you quickly compare and analyze the raw data found in your personal income statement and balance sheet true
An emergency fund, or rainy-day fund, is comprised of liquid assets sufficient to cover 3.5 years of expenditures false
The purpose of using financial ratios is to both C and D C.help analyze your raw data to compare how well you are doing.D.better understand how you are managing your financial resources.
Which questions do financial ratios help you answer? All of the above*** A.Do I have the ability to meet my debt​ obligations?B.Am I saving as much as I think I​ am?C.Do I have adequate liquidity to meet​ emergencies?
Your ………… debt ratio is found by dividing total debt or liabilities by total assets debt ratio
Suppose that you wanted to calculate a financial ratio to measure your liquidity. You would most likely use the ……… ratio current
The current ratio is a measure of liquidity that reflects how many times you can pay off your current liabilities by using your liquid assets
Below are several people and their current ratios. If they were to lose their jobs​ today, which one would probably experience financial stress and pressures the​ quickest? A.***Elmo has a current ratio of 0.5 times.Your answer is correct.B.Dee has a current ratio of 1 time.C.Andy has a current ratio of 2.1 times.D.There is not enough information to answer this question
Hector’s month’s living expenses covered ratio is 0.25 months. He just broke his leg and will not be able to work for six weeks. Without a paycheck for six​ weeks, what will Hector most likely​ experience? E.***Both A and C are realistic possibilities. A.He may have to liquidate some of his tangible or investment assets to keep current on his monthly billsC.He may have to borrow some money to keep current on his monthly bills
According to the Keown​ book, Mint and Level Money are two of the best smartphone apps for tracking your spending and setting up a budget true
According the Keown​ book, which Web-based personal financial planning website is known as​ “the best free way to manage your​ money?” Mint.com
A strong record-keeping system allows you to all of the above
An estimate of your anticipated after-tax income available for living expenses is commonly called take-home pay true
Having negative net income every once in a while is not such a bad thing as long as you have planned for it true
Which of the following financial documents would you to use to create a financial plan? A.Balance sheetB.Cash budgetC.BudgetD.Income statementE.All of the above****
A plan for controlling and forecasting your cash inflows and cash outflows is called a cash budget
Commission-only planners charge fees and collect commissions on products they recommend false
​________ planners charge a fee that is reduced by the amount of the commissions they earn. Fee- Offset
Under what conditions should people hire a professional financial planner? A.When it is apparent their financial planning skills are limitedB.When they run into complex tax or legal issuesC.When they start receiving late payment penalties from their creditorsD.When they need someone to improve or validate the plan they prepared themselvesE.All of the above***
Which of the following are not typically found on a balance sheet? both B and D
According to the Keown​ book, the most popular personal financial management program for the PC is Intuit’s Quicken
Suppose that you have been operating an online marketing business out of your​ home, and the business has recently expanded beyond belief. Since you have neglected your personal finances for some​ time, what would you do as a first​ step? Separate your personal finances from the business finances.
An expenditure over which you have control and are not obligated to​ make, and which may vary from month to month is called a​ ________ expenditure. flexible
Which of the following statements describe the importance of a​ budget? A.With a​ well-planned budget, money will seem to go farther and he will be able to do more with what he has.Your answer is correct.B.A​ well-planned budget prepares someone for the future and the unforeseen events that the future holds. Your answer is correct.C.A​ well-planned budget accurately matches a​ household’s abilities with its financial goals.
Which type of expenditure would probably be the hardest for an individual to​ track? cash
Your​ ________include cash, checking and savings account​ balances, and money market funds monetary assets
Which of the following would you calculate if you were concerned about your financial resources with regards to unplanned money​ emergencies? current ratio
The common thread among investment assets is that they are purchased for the purpose of generating wealth
From the Keown​ book, you have learned that a budget all of the above
A personal income statement is prepared both B and C
To determine your net​ worth, subtract your liabilities from your positive net equity. false
An income statement tracks the amount of money you have coming in and going out over some period of​ time, such as a month or a year. true
Alysha has​ $500 in monetary assets and​ $5,000 in current liabilities. What is her current​ ratio? .10 times
When including an asset such as a car on your balance sheet list its current value as indicated in a blue book or site like www.edmunds.com
In some cases insolvency can lead to bankruptcy. true
What would happen to your net worth if you sold a tangible asset you owned for​ $1,000 and used the money to pay off your credit card balance for​ $1,000? your net worth remain the same
According to the Keown​ book, an emergency fund consists of liquid assets that are sufficient to cover​ ________ of expenditures. 3 to 6 months
Cameron has​ $17,000 in monetary assets and​ $4,000 in current liabilities. What is his current​ ratio? 17,000/4,000
Bradley went shopping today and used his American Express credit card to buy a new pullover sweater. He used his bank debit card to pay for a video game and bought some snack food with cash. Which of these purchases are difficult to track and monitor on his​ budget? the snacks are difficult to track because cash interactions don’t leave a paper trail
Your​ ________ is found by dividing monetary assets by current liabilities and is a good measure of liquidity. current ratio
If the people​ below, with their respective current​ ratios, were to lose their jobs​ today, which one would have more time and more choices until he or she found another​ job? rick has a current ratio of 2.5 times
A budget is a process of setting spending goals for the upcoming month or year. true
The term​ “fair market​ value” refers to how the price of an asset has changed since its original purchase. false
The lower the number of wage earners in the​ household, the less credit​ available, and the lower the stability of​ employment; the higher the emergency fund should be.
Which of the following might be found on an income​ statement? all of the above
When measuring your current financial health it is important to create both B and C
A debt ratio is aimed at determining if you have adequate liquidity to meet emergencies. false
Jorge has a debt ratio of 37 percent and Jose has a ratio of 102 percent. They both have the same take-home pay every month. How can we describe their current financial​ situation? all of the above
If your liabilities are greater than the value of your assets you are considered insolvent
A(n) ________ is a reserve or rainy-day fund with money set aside to be used for unexpected expenses or when normal income has been disrupted. emergency fund
As long as a financial planner is certified you need not worry about his ability to provide you with the correct financial plan for your situation. false
To calculate your net​ worth, subtract your total debt from your total assets. true
Planning and budgeting requires all of the above
Which of the following is the best type of record-keeping system to use in maintaining financial​ records? all of the above
Which financial planning document should you use to measure your current financial​ condition? balance sheet
Suppose that you were trying to determine how much income was available for future monetary needs as well as for investments. Which of the following ratios would you most likely​ use? savings ratio
A vehicle leased in your name is an example of a tangible asset that you would list on your balance sheet. false
An expenditure over which you have no control and are obligated to make is a fixed expenditure
Liabilities are best described as financial debts and obligations that you owe
Which of the following is a relevant question to ask a financial​ planner? all of the above
From her annual salary of​ $60,000, Claudia has​ $4,500 automatically deducted for insurance on an annual basis.​ Additionally, $7,500 is deducted each year in taxes. When preparing her personal income​ statement, what figure should Claudia enter for her​ income? $60,000

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