FIN 101 EXAM 1

Kathy purchases new furniture for $10,000. She put $1,000 down and financed $9,000. She will pay $350 per month until the loan is paid off. Which are correct? a. the furniture should be recorded as an asset of $10,000 on Kathy's balance sheet. b. the $9,000 is entered as a liability on Kathy's balance sheet. c. The furniture should be recorded as a $1,000 expenditure on Kathy's balance sheet. d. The $350 payments are expenditures on Kathy's income and expenditure statement. e. All are correct except c

Answer: e; all are correct except c

At the end of your car lease period, you intend to turn in the car, and you will not pay extra at that time based on the residual value of the car. You have ______ lease.

a closed-end

Whenever you write a check or make a deposit, an entry should be made on your

checkbook ledger

At the end of the lease period, you are never required to

purchase the vehicle at its residual value

Lower interest rates on certificates if deposit are associated with

shorter maturities

A progressive tax system is one in which higher-income people pay _______ than lower-income people.

tax at a higher rate

With open account credit, one can often avoid interest charges if

the account balance is paid in full every month

You are solvent is your

total assets exceed total liabilites

True or False: A balance sheet shows your financial condition as of the time the statement is prepared.

true

True or False: A certified check is a personal check that the bank guarantees the funds are available.

true

True or False: A charge made on your credit card becomes a liability as soon as the charge is incurred.

true

True or False: A closed-end automobile lease is the most popular type of lease.

true

True or False: A short sale does not affect a distressed homeowner's credit score as much as a foreclosure.

true

True or False: Compound interest means that a savings account earns interest on the interest previously earned.

true

True or False: Convenience and improved record keeping are two advantages sited for on-line bill payment.

true

True or False: Credit union members are expected to have some common bond.

true

True or False: Debit and ATM card transactions are linked to your checking account.

true

True or False: Having a checking account tells creditor that you have some experience in managing your own funds.

true

True or False: Joint checking accounts typically imply the right of survivorship if one party should die.

true

True or False: Low-balling is a sales technique where the salesperson quotes a low price for a car to get you to make an offer, and negotiates the price upward prior to signing the sales agreement.

true

True or False: Renting affords more flexibility than home ownership.

true

True or False: The value of assets purchased on credit should be included on the asset side of your personal balance sheet.

true

Kurt has $4,500 for a down payment and thinks he can afford monthly payments of $300. If Kurt can finance a vehicle with a 7%, 4-year loan, what is the maximum amount he can afford to spend on the car?

$17,028

One's marginal tax rate is typically lower than one's average tax rate.

false

True or False: A bank could advertise as "free" a checking account that requires a minimum balance of $3,000 to avoid monthly service charges.

false

True or False: Asset management accounts are offered by most banks and are typically FDIC insured.

false

True or False: If Lois has $2,000 in checking, $50,000 in a money market account, and $75,000 in certificates of deposit (all individual accounts) at her local bank, her accounts would be insured through FDIC for $100,000.

false

True or False: It is safe, and often required, to give your Social Security number as a form of identification when using a credit card.

false

True or False: Money I loaned to a friend is a liability on my balance sheet.

false

True or False: One's marginal tax rate is typically lower than one's average tax rate.

false

True or False: The balance sheet equation is assets plus liabilities equals net worth.

false

True or False: The equity in your home is the difference between the loan balance and the purchase price.

false

True or False: You can stop payment when you purchase an item with your debt card.

false

Interest will always begin to accrue immediately when you use a bank credit card to

get cash advances

Installment loans using the simple interest method

have interest charged only on the monthly loan balance

The _______ is really a second mortgage on your home.

home equity line of credit

If your total assets equal $87,000 and your total liabilities equal $10,000; your solvency ratio is

88.5%

A money factor of 0.00360 on a lease is equivalent to an APR of

8.64 (always remember to multiply by 24!)

Anna purchased a vehicle 6 years ago for $25,000. Over the years, she paid a total of $5,800 in auto insurance, $4,800 on gas and maintenance, and $2,500 in interest. What was her depreciation coast on this vehicle?

$20,000

If your monthly before-tax income is $2,000 and your monthly take-home pay is $1,500, your maximum monthly consumer credit payments should not exceed

$300

Diana sold mutual fund shares she had owned 4 years so that she could use the proceeds to travel across Europe with her son. Diana is in the 35% marginal tax bracket and her capital gains from this sale were $30,000. How much tax would Diana owe on those gains?

$4,500; long term capital gain/35% tax bracket= 15% taxed on her capital gain

Clare's gross salary is $36,000 annually and her after-tax income is $28,800. What is Clare's maximum recommended monthly consumer credit payment?

$480

Your total cash income is $40,000. You pay $5,000 in taxes and $30,000 in other expenses. Your savings ratio is

14.3%

When the simple interest method is used to determine finance charges, the interest is calculated based on the

actual balance of the loan

When comparing credit cards, a person who pays his total outstanding balance off monthly would want a card with

an adequate grace period and no annual fee

Mike has a MasterCard with an annual fee of $25, 18% interest, and a $1,000 credit limit. He always pays the total outstanding balance monthly. His most recent monthly statement lists last month's payment, new charges this month totaling $1,500, and a $30 fee. That fee is most likely the result of

an over-the-limit fee

If you write a check for an amount greater than your account balance, the result will be

an overdraft

The first step in the auto-buying process should be

analyze how much car you can afford

If your __________, your net worth on the balance sheet would have increased from one period to the next.

assets increased and liabilities remain constant

The loss in value in a car over time is called

depreciation

The loss of value in a car over time is called

depreciation