Question

Which of the following statements is/are correct?

1. The principal but not the interest to be paid this year on a 30-year mortgage is properly
      classified on the Statement of Financial Position as a current liability.

2. A CD with a maturity of 9-months is classified as an investment asset on the Statement of
      Financial Position.

Select one:

a. a.   1 only.

b. b.   2 only.

c. c.   Both 1 and 2.

d. d. Neither 1 nor 2.

Question 12

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Which of the following statements is/are correct?

1. Net worth represents the personal equity that the individual has in his assets and can never be

less than zero.

2. If Lisa purchased a car using 30% cash and 70% debt, her net worth would increase by 30%.

Select one:

a. a.   1 only.

b. b.   2 only.

c. c.   Both 1 and 2.

d. d. Neither 1 nor 2.

Question 13

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Which of the following statements is/are correct?

1. Property titled Joint Tenants with Rights of Survivorship (JTWROS) can only be owned by

married couples.

2. Property titled Tenants by the Entirety can only be owned by married couples.

Select one:

a. a.   1 only.

b. b.         2 only.

c. c.   Both 1 and 2.

d. d. Neither 1 nor 2.

Answer 1

Answer 1:

Correct answer is:

a.   1 only.

Explanation:

Current portion of long term debt is classified as current liability. Periodic mortgage payment has both interest and principal components. Only principal component is considered liability. The interest portion is an expense. Hence "the principal but not the interest to be paid this year on a 30-year mortgage is properly classified on the Statement of Financial Position as a current liability." is correct.

CD with a maturity of 9-months is not classified as an investment asset on the Statement of Financial Position. Hence the statement "CD with a maturity of 9-months is classified as an investment asset on the Statement of Financial Position." is incorrect.

As such option a is correct and other options b, c and d are incorrect.

Answer 2:

Correct answer is:

d. Neither 1 nor 2.

Explanation:

Although it is not normal but net worth in exceptional cases can be less than zero. As such the statement "Net worth represents the personal equity that the individual has in his assets and can never be less than zero" is incorrect.

If Lisa purchased a car using 30% cash and 70% debt, her net worth is not impacted. The impacted accounts will be on asset side 'Cash' and 'Vehicles' and on liability side 'Debt". Equity is not impacted. As such the statement "If Lisa purchased a car using 30% cash and 70% debt, her net worth would increase by 30%." is also incorrect.

Hence option d is correct and other options a, b and c are incorrect.

Answer 3:

Correct answer is:

b. 2 only.

Explanation:

Al though Property titled Joint Tenants with Rights of Survivorship (JTWROS) are mostly used by married couples but it is not restricted to married couples only. As such the statement "Property titled Joint Tenants with Rights of Survivorship (JTWROS) can only be owned by married couples." is incorrect.

The statement "Property titled Tenants by the Entirety can only be owned by married couples." is correct.

Hence option b is correct and other options a, c and d are incorrect.