Module 2 Quiz Flashcards
Assets listed on a statement of financial position are typically divided into what three categories?
Cash/cash equivalents, invested assets, and use assets
David is planning to provide $50,000 as financial backing for his coworker’s business, which they have been discussing over lunch for the past year. David does not want to participate in the day-to-day operations, just earn a return for his investment. Which of the following business forms would initially be the least complex to set up and also meet David’s desire to be uninvolved?
Limited partnership
In general, assets are shown on a statement of financial position at _____.
Their fair market values
Which of these assets would be classified as a cash/cash equivalent on the statement of financial position?
Certificate of deposit (CD)
The financial statement that summarizes actual cash receipts and cash disbursements for a specified period is _____.
The cash flow statement
The financial statement that summarizes actual cash receipts and cash disbursements for a specified period is _____.
Home equity, personal property, and retirement benefits
Which of the following is normally considered a fixed outflow?
Auto note payments
A cash flow statement is similar to a budget in that both show _____.
Projected inflows
Which of these is generally considered an appropriate savings ratio?
10% or higher
The ratio of annual debt repayments to gross income is known as _____.
The back-end debt-to-income ratio
To still be considered adequate, the highest a front-end debt-to-income ratio should be is _____.
28%
To still be considered adequate, the highest a front-end debt-to-income ratio should be is _____.
Administrator or human resources
Calculate the savings ratio based on the following financial statement.
INFLOWS $120,000
Gross salaries $1,000
Dividend income $1,225
Interest income $2,500
Payment from trust account $124,725
TOTAL INFLOWS
OUTFLOWS
Savings $7,000
Investments $5,000
Fixed Outflows
Mortgage payments $24,000
Home insurance & taxes $4,100
Auto loan payments $4,800
Insurance premiums $2,125
Total Fixed Outflows $35,025
Variable Outflows
Taxes $20,350
Food $6,500
Transportation $1,550
Clothing/personal $7,525
Entertainment/vacation $10,800
Medical/dental care $5,445
Utilities/household $5,555
Credit card payments $1,000
Miscellaneous $4,625
Total Variable Outflows $63,350
TOTAL OUTFLOWS $105,375
NET INFLOW $19,350
9.62%
Which of these statements regarding home ownership is CORRECT?
Monthly total housing costs tend to fluctuate
Which of the following is NOT a budget item?
House appreciation
What credit protection legislation established the annual percentage rate (APR) as a way to standardize percentage rates for comparison?
Consumer Credit Protection (Truth in Lending) Act
Net worth is the difference between _____.
Total assets and total liabilities
Which of the following is the recommended minimum number of months’ expenses that a working couple’s emergency fund should cover?
Three months
Which of the following statements about an education grant is true?
An education grant is money given outright to a student, with no exception of repayment
Which of the following correctly characterizes the operations of a closely held company?
Closely held company owners commonly commingle personal and business finances, which is a problem a financial planner should monitor
The consumer ratio, also known as the nonmortgage debt-to-income ratio, is considered appropriate when that ratio is _____.
20% or lower
To which of the following does the Fair Credit Billing Act pertain?
Credit cards
Which of these statements about the impact of a FICO score on obtaining credit is CORRECT?
Generally, the lower one’s FICO score, the higher the interest rate for borrowing will be
Which of the following is a reason to consider when deciding whether to buy or lease a home?
- Cost
- Convenience
Both 1 and 2