Chapter 2 Test A
1. The three parts of your balance sheet are
a. income, liabilities, balance
b. assets, expenditures, balance
c. assets, liabilities, balance
d. assets, liabilities, net worth
e. income, liabilities, net worth
2. Sam and his wife Ann purchased a home in Lubbock, Texas in 1980 for $100,000. Their original home
mortgage was for $90,000. The house has a current market value of $175,000 and a replacement value
of $200,000. They still owe $55,000 on their home mortgage. Sam and Sally are now constructing
their balance sheet. How should their home be reflected on their current personal balance sheet?
a. $200,000 asset and $55,000 liability
b. $200,000 asset and $90,000 liability
c. $175,000 asset and $55,000 liability
d. $175,000 asset and $90,000 liability
e. $100,000 asset and $55,000 liability
3. Jacque's total monthly loan payments are $1,020 while her gross income is $3,000 per month. What is
her debt service ratio?
4. To determine how effectively the budget is working, you can use
a. the balance sheet.
b. the income statement.
c. income and expenditure records.
d. year-end financial statements.
e. financial goals.
5. Michael and Sandy purchased a home for $100,000 five years ago. If it appreciated 6% annually, what
is it worth today?
6. You are solvent if your
a. total liabilities exceed total assets.
b. total assets exceed total liabilities.
c. total assets exceed net worth.
d. total liabilities exceed net worth.
e. none of these.
7. Your ____ is an example of a liquid asset.
c. checking account
d. charge account
e. life insurance cash value
8. On an income statement covering January 1 to June 30, ____ would not be included as income.
a. wages and salaries received in that six months
b. interest received on June 30
c. auto sold with payment received May 15
d. inheritance granted in April, to be paid in September
e. income tax refund received April 14
9. When a cash surplus exists on your income and expenditure statements, you can
a. acquire assets
b. pay off existing debts
c. increase your savings
d. increase your investments.
e. do any of the above
10. Dual-income families often face
a. reduced employee benefit options
b. increased complexity in their money management systems
c. reduced expenditures as a result of the second job
d. reduced taxes due to tax breaks
e. increased time to spend with the family
11. Elena purchased a stamp collection for $5,000 thirty years ago. If it appreciated 8% annually, what is it
a. $ 17,000
b. $ 36,400
c. $ 50,313
d. $ 123,023
12. The balance sheet describes a family's wealth
a. at a certain point in tine
b. as an annual summary
c. as a time period less than one year
d. at a future time
e. none of these
13. The Wilson family's short-term goals might include
a. setting up an emergency fund of three months' income
b. buying a house
c. sending the kids to college
d. planning to retire at age 60
e. all of these
14. Jamil invested $9,500 in an account he expects will earn 5% annually. Approximately how many years
will it take for the account to double in value?
15. Professional financial planners are regulated by
a. the federal government.
c. state agencies.
d. local regulators.
e. no one.
16. The most common budgeting period is a
17. Your total cash income is $40,000. You pay $5,000 in taxes and $30,000 in other expenses. Your
savings ratio is
18. What can you do if your budget shows an annual budget deficit?
a. Liquidate enough savings and investments to meet the total budget shortfall for the year.
b. Borrow enough to meet the total budget shortfall for the year.
c. Cut low-priority expenses from the budget.
d. Increase Income.
e. All of the above.
19. Cafeteria benefit plans
a. are paid for by employers.
b. are paid for by employees.
c. provide employees a choice regarding the benefits they receive.
d. allow employees to reward productive employees.
e. are less beneficial to two-career families than to others
20. Your investment advisor wants you to purchase an annuity that will pay you $25,000 per year for 10
years. If you require a 7% return, what is the most you should pay for this investment?
a. $ 49,179
21. On the balance sheet, a mortgage loan is recorded as the
a. interest only.
b. sum of interest paid and the outstanding balance
c. sum of interest due and the outstanding balance.
d. principal portion only.
e. none of the above.
22. The balance sheet equation is:
a. Total Assets / Total Liabilities = Net Worth.
b. Total Assets × Total Liabilities = Net Worth
c. Total Assets - Total Liabilities = Net Worth
d. Total Assets + Total Liabilities = Net Worth
e. Total Liabilities - Total Assets = Net Worth
23. When Phil lists his house on his balance sheet, he should record the
a. actual purchase price
b. replacement value
c. insured value
d. sale price
e. fair market value
24. The main purpose of a budget is to
a. develop goals
b. develop a financial plan
c. give feedback to the plan
d. monitor and control financial outcomes
e. revise goals
25. Mandy and Jeff have a net worth of $25,000 and total assets of $140,000. If their revolving credit and
unpaid bills total $2,200, what are their total liabilities?
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