FPQP FPQP Financial Statement Analysis 2

Question 1

A personal income statement primarily shows:

Accepted Answer

Income received and expenses paid over a period

Answer

A personal income statement summarizes cash inflows (income) and outflows (expenses) over a defined time period to reveal discretionary cash flow.

Question 2

Discretionary cash flow on a personal income statement equals:

Accepted Answer

Total income minus all expenses (fixed and variable)

Answer

Discretionary cash flow is what remains after all income is received and all expenses—fixed and variable—are paid.

Question 3

A client's debt-to-income (DTI) ratio is calculated by dividing:

Accepted Answer

Monthly debt payments by gross monthly income

Answer

The DTI ratio is monthly debt service divided by gross monthly income, and lenders typically prefer a ratio below 36%.

Question 4

Which financial statement would a paraplanner use to identify opportunities to increase a client's savings rate?

Accepted Answer

Personal income statement

Answer

The personal income statement reveals income sources and expense patterns, making it the best tool for finding areas to cut spending or redirect cash to savings.

Question 5

A client has gross annual income of $120,000 and annual debt payments of $30,000. What is their debt-to-income ratio?

Accepted Answer

25%

Answer

$30,000 ÷ $120,000 = 25%, indicating one-quarter of gross income is committed to debt service.

FPQP - Financial Paraplanner Qualified Professional Practice Test

FPQP - Financial Paraplanner Qualified Professional Practice Test

FPQP FPQP Financial Statement Analysis 2