Module 2 - FPQP
Assets listed on a statement of financial position are typically divided into what three
categories?
A) Cash/cash equivalents, invested assets, and use assets
B) Cash/cash equivalents, invested assets, and personal property
C) Cash/cash equivalents, financial assets, and use assets
D) Savings and checking accounts, stocks and bonds, and use assets - answerA)
Cash/cash equivalents, invested assets, and use assets
Explanation
Cash/cash equivalents, invested assets, and use assets are the three categories of
assets typically found on a statement of financial position.
LO 2-1
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?
A) General partnership
B) C corporation
C) Limited partnership
D) Sole proprietorship - answerC) Limited partnership
Explanation
A limited partnership would allow one partner to run the business and the other to
remain with limited duties (only an investment, in this case). While the C corporation
may be viable for the business setup, it is a much more complex form of business than
a limited partnership and not generally used for a small startup. An S corporation is
more startup friendly, but still more complex to set up than a partnership.
LO 2-9
In general, assets are shown on a statement of financial position at
A) cost.
B) their fair market values.
C) their projected values.
D) par values. - answerB) their fair market values.
Explanation
Assets are shown at their fair, or current, market values. Assets shown at cost would
not reflect any adjustments since purchase. Because a projected value is an estimate of
a future value, this would not necessarily be accurate. Assets could not be shown at
, their par values because many assets have no par value. This is a more appropriate
measure for an investment in bonds.
LO 2-1
Which of these assets would be classified as a cash/cash equivalent on the statement
of financial position?
A) Common stock
B) Salaries and wages
C) Bond mutual fund
D) Certificate of deposit (CD) - answerD) Certificate of deposit (CD)
Explanation
A certificate of deposit (CD) is a cash/cash equivalent because it can be converted to
cash quickly with little, if any, loss of principal. A bond mutual fund and common stocks
are not considered cash/cash equivalents. Salaries and wages are items on a cash flow
statement, not a statement of financial position.
LO 2-1
The financial statement that summarizes actual cash receipts and cash disbursements
for a specified period is
A) the balance sheet.
B) the cash flow statement.
C) the statement of financial position.
D) the budget. - answerB) the cash flow statement.
Explanation
A cash flow statement summarizes actual cash receipts and cash disbursements for a
specific period. A statement of financial position, also known as a balance sheet,
summarizes assets, liabilities, and net worth as of a given date. A budget summarizes
targeted cash flow amounts and their timing for a future period.
LO 2-1
Which of the following lists of the major asset components of net worth is CORRECT?
A) Retirement benefits, home equity, and jewelry
B) Home equity, personal property, and retirement benefits
C) Personal property, travel expenses, and retirement benefits
D) Home equity, investments, and jewelry - answerB) Home equity, personal property,
and retirement benefits
Explanation
Home equity, personal property, and retirement benefits generally compose the largest
portion of an individual's net worth.
LO 2-2
Which of the following is normally considered a fixed outflow?
A) Taxes
Assets listed on a statement of financial position are typically divided into what three
categories?
A) Cash/cash equivalents, invested assets, and use assets
B) Cash/cash equivalents, invested assets, and personal property
C) Cash/cash equivalents, financial assets, and use assets
D) Savings and checking accounts, stocks and bonds, and use assets - answerA)
Cash/cash equivalents, invested assets, and use assets
Explanation
Cash/cash equivalents, invested assets, and use assets are the three categories of
assets typically found on a statement of financial position.
LO 2-1
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?
A) General partnership
B) C corporation
C) Limited partnership
D) Sole proprietorship - answerC) Limited partnership
Explanation
A limited partnership would allow one partner to run the business and the other to
remain with limited duties (only an investment, in this case). While the C corporation
may be viable for the business setup, it is a much more complex form of business than
a limited partnership and not generally used for a small startup. An S corporation is
more startup friendly, but still more complex to set up than a partnership.
LO 2-9
In general, assets are shown on a statement of financial position at
A) cost.
B) their fair market values.
C) their projected values.
D) par values. - answerB) their fair market values.
Explanation
Assets are shown at their fair, or current, market values. Assets shown at cost would
not reflect any adjustments since purchase. Because a projected value is an estimate of
a future value, this would not necessarily be accurate. Assets could not be shown at
, their par values because many assets have no par value. This is a more appropriate
measure for an investment in bonds.
LO 2-1
Which of these assets would be classified as a cash/cash equivalent on the statement
of financial position?
A) Common stock
B) Salaries and wages
C) Bond mutual fund
D) Certificate of deposit (CD) - answerD) Certificate of deposit (CD)
Explanation
A certificate of deposit (CD) is a cash/cash equivalent because it can be converted to
cash quickly with little, if any, loss of principal. A bond mutual fund and common stocks
are not considered cash/cash equivalents. Salaries and wages are items on a cash flow
statement, not a statement of financial position.
LO 2-1
The financial statement that summarizes actual cash receipts and cash disbursements
for a specified period is
A) the balance sheet.
B) the cash flow statement.
C) the statement of financial position.
D) the budget. - answerB) the cash flow statement.
Explanation
A cash flow statement summarizes actual cash receipts and cash disbursements for a
specific period. A statement of financial position, also known as a balance sheet,
summarizes assets, liabilities, and net worth as of a given date. A budget summarizes
targeted cash flow amounts and their timing for a future period.
LO 2-1
Which of the following lists of the major asset components of net worth is CORRECT?
A) Retirement benefits, home equity, and jewelry
B) Home equity, personal property, and retirement benefits
C) Personal property, travel expenses, and retirement benefits
D) Home equity, investments, and jewelry - answerB) Home equity, personal property,
and retirement benefits
Explanation
Home equity, personal property, and retirement benefits generally compose the largest
portion of an individual's net worth.
LO 2-2
Which of the following is normally considered a fixed outflow?
A) Taxes
