Personal Financial Statements

Question 1

To who may personal financial statements be prepared?

Answer 1

individual, husband and wife, a family

Question 2

What are the 4 things present in personal financial statements?

Answer 2

1. estimate current value of assets
2. estimate current liabilities
3. estimated income taxes on the difference between the est value of assets and liabilities and their tax bases
4. net worth

Question 3

What is net worth?

Answer 3

difference between total assets and total liabilities after estimated income taxes on the difference between the estimated values of assets and liabilities and their tax bases

Question 4

How should assets and liabilities be shown on the personal financial statement?

Answer 4

Assets should be presented in order of liquidity. Liabilities should be shown in order of maturity. There is no classification of current and non-current

Question 5

What basis should be used on the personal financial statements?

Answer 5

accrual basis

Question 6

How should large business interests be shown on personal financial statements?

Answer 6

they should be shown separately from other investments. The estimated current value of an investment in a separate entity should be shown in one amount as an investment

Question 7

What does the statement of changes in net worth present?

Answer 7

major sources of increases and decreases in net worth

Question 8

What are 4 major sources of increases in net worth?

Answer 8

1. income
2. increase in the estimated current values of assets
3. decreases in the estimated current amounts of liabilities
4. decrease in estimated income taxes on the differences between estimated current values of assets and liabilities and their tax bases

Question 9

What are the 4 major sources of decreases in net worth?

Answer 9

1. expenses
2. decreases in the estimated current values of assets
3. increases in the estimated current amounts of liabilities
4. increases in estimated income taxes on the differences between the estimated current values of assets and liabilities and their tax bases

Question 10

Is the presentation of a statement of changes in net worth mandatory?

Answer 10

no

Question 11

What is the estimated current value of an asset in personal financial statements?

Answer 11

the amount at which the items could be exchanged between an informed and willing buyer and an informed and willing seller, neither of whom is compelled to buy or sell

Question 12

Should costs of disposal be considered when estimating current values?

Answer 12

only if material

Question 13

How is the current value of receivables determined?

Answer 13

valued at discounted amounts of cash the person estimates will be collected

Question 14

How is the current value of marketable securities determined?

Answer 14

both debt and equity are valued at their quoted market prices if traded on the date of the statement of financial condition. If not the trade date, the value assigned should be within thee range of bid and ask prices

Question 15

How is the current value of options determined?

Answer 15

valued at the published prices if available. Otherwise, on the basis of the values of assets subject to option (considering such factors as exercise price and length of option period)

Question 16

How is the current value of investments in life insurance policies determined?

Answer 16

valued at the cash value of the policy less the amount of any loans against it. Face amount of policy should be disclosed

Question 17

How is the current value of investments in closely held businesses determines?

Answer 17

valued as a single-line net investment at estimated current value

Question 18

How is the current value of real estate (including leaseholds) determined?

Answer 18

valued at the estimated current value (sale of similar properties and appraisal values)

Question 19

How is the current value of intangible assets determined?

Answer 19

valued at the discounted amount of projected cash flows from the planned use or sale of the asset f both the amounts and timing of the cash flows can be reasonably estimated. Otherwise, cost should be used

Question 20

How is the current value of future interests and similar non-forfeitable rights determined?

Answer 20

valued at discounted amounts
Examples:
1. guaranteed minimum portions of pensions
2. vested interests in pension or profit sharing plans
3. deferred compensation contracts
4. remainder interests in property subject to life estates
5. annuities
6. fixed amounts of alimony for a definite future period

Question 21

What is the estimated current liability in personal financial statements?

Answer 21

It is the discounted amount of cash to be paid. The discount rate should be the rate implicit in the transaction giving rise to the liability. However, it the debtor is able to discharge the liability currently at a lower amount, the liability should be presented at the lower amount.

Question 22

How should non-cancelable commitments to pay future sums be presented?

Answer 22

as liabilities at their discounted amounts

Question 23

The liability for income taxes payable should include what?

Answer 23

unpaid income taxes for completed tax years and any unpaid estimated income taxes payable for the elapsed portion of the current year up to the date of the FS

Question 24

Where should the estimated tax on appreciation be presented on the FS?

Answer 24

between liabilities and net worth. Changes in the estimated tax on appreciation represents increases/decreases in net worth to be disclosed on the statement of changes in net worth

Question 25

How should the estimated tax on appreciation be computed?

Answer 25

as if the estimated current values of all assets had been realized and the estimated current amounts of liabilities had been liquidated on the FS date using applicable income tax laws and regulations