Test Bank For PFIN 6th Edition by Billingsley

Test Bank For PFIN 6th Edition by Billingsley

Chapter 02: Using Financial Statements and Budgets

1. The balance sheet shows an individual’s financial condition as of the time the statement is prepared.

a.  True

b.  False

ANSWER:   True

 

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

ANSWER:   False

 

3. An income and expense statement provides a measure of financial performance over a period of time.

a.  True

b.  False

ANSWER:   True

 

4. Financial planning is necessary only if an individual earns a lot of money.

a.  True

b.  False

ANSWER:   False

 

5. The preparation of an income and expense statement is the first step in the personal financial planning process.

a.  True

b.  False

ANSWER:   False

 

6. Knowing how to prepare and interpret personal financial statements is a cornerstone of personal financial planning.

a.  True

b.  False

ANSWER:   True

 

7. Financial plans provide direction to annual budgets.

a.  True

b.  False

ANSWER:   True

 

 

8. If an individual obtains a loan to purchase a car in June, this loan amount will be included as income for the month of June.

a.  True

b.  False

ANSWER:   False

 

9. An individual’s auto loan payments are listed as an expense on the income and expense statement.

a.  True

b.  False

ANSWER:   True

 

10. If an individual lists his or her gross salary in the income portion of the budget, the expenditures section will include income taxes and social security taxes.

a.  True

b.  False

ANSWER:   True

 

11. Net income (after taxes) should be used when preparing an income and expense statement.

a.  True

b.  False

ANSWER:   False

 

12. It is best to prepare an individual’s personal financial statements at least once a year, ideally when drawing up his or her budget.

a.  True

b.  False

ANSWER:   True

 

13. It is recommended that an individual maintains a ledger to summarize all of his or her financial transactions.

a.  True

b.  False

ANSWER:   True

 

14. An individual should prepare his or her personal financial statements once in five years.

a.  True

b.  False

ANSWER:   False

 

15. An individual can maintain his or her personal financial statements using spreadsheet software.

a.  True

b.  False

ANSWER:   True

 

16. An inability to reach short-term goals will significantly affect one’s ability to reach long-term goals.

a.  True

b.  False

ANSWER:   True

 

17. 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

ANSWER:   True

 

18. The best way to balance one’s budget is to increase borrowing.

a.  True

b.  False

ANSWER:   False

19. Budgeting and record-keeping are the same.

a.  True

b.  False

ANSWER:   False

20. 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

ANSWER:   True

21. A cash budget has value only if one uses it, reviews it regularly, and keeps careful records of income and expenses.

a.  True

b.  False

ANSWER:   True

22. In a budget, “fun money” is for family members to spend as they like without having to account for how it is spent.

a.  True

b.  False

ANSWER:   True

23. Future value calculations to estimate the funds needed to meet a goal take compounding into account.

a.  True

b.  False

ANSWER:   True

 

24. A balance sheet describes a person’s:

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.

ANSWER:   a

 

25. Which of the following is true of an individual’s income and expense statement?

a.  An individual’s income and expense statement describes his or her financial position at a given point in time.

b.  An individual’s income and expense statement measures his or her financial performance at a given point in time.

c.  An individual’s income and expense statement describes his or her financial goals over a specific period of time.

d.  An individual’s income and expense statement measures his or her financial performance over a period of time.

e.  An individual’s income and expense statement describes his or her financial position over a period of time.

ANSWER:   d