Personal Financial Statements

Question 1

Statement of Financial Condition

Answer 1

Estimated current values of assets, estimated current values of liabilities, estimated income tax, and net worth at a specified date. (B/S)

Question 2

Statement of changes in net worth

Answer 2

Main sources of increases (decreases ) in net worth over the time period included by the statement of changes in net worth.

Question 3

Life Insurance Policy

Answer 3

(whole life policy not term) Policy will build up cash value of which you can borrow agains at low interest rates. If you’ve cashed in the policy and have not paid back the loan to the Ins. Co. will have to be shown on the Personal Statement of financial condition

Cash surrender value - loan balance = net asset

Question 4

Statement of Financial Condition

Answer 4

Assets at Estimated current value
less: Liabilities at estimated current value
less: Income taxes
=Net workth

Question 5

Estimated income taxes

Answer 5

Net assets at estimated current value 
less: net assets at basis (Historical cost)
=gain
x tax rate
=estimated tax liability

Question 6

Future interest that is nonforfeitable

Answer 6

Should be valued using discounted cash flow. (instead of the generally estimted current values)

Question 7

Investment in a limited business activity which are not conducted in a seperate business entity

Answer 7

Seperate asset and liability amounts of the investment should be shown on the statement of financial condition.

Question 8

Investment in a seperate entity marketable as a going concern

Answer 8

Should be presented as one amount (netted asset and related liability) on the statement of financial position.

Question 9

Attributes of a commitment (should be included in liabilities in the statement of financial position)

Answer 9

Must have all of the following attributes

1. are for fixed or determinable amounts
2. are not contingent on others’ life expectancies or occurence of a particular event
3. do not require future performance of service by others.