Fin 300

The _____ _____ System is the central bank of the United States and has significant economic responsibility.

Federal Reserve

Which one of the following is an example of a variable expense?

Groceries

What is the current value of a future amount based on a certain interest rate and a certain time period?

Present value

The due date for the third installment for estimated tax is in which month?

September

If you file Form 4868 to obtain an automatic extension on filing your forms, you must pay your estimated taxes owed or face ________________________.

a penalty for being just one day late Reason: If you file Form 4868 to obtain an automatic extension on filing your forms, you must pay your estimated taxes owed or face a penalty for being just one day late.

A rise in the general level of prices is called:

inflation

Another name used for discounting is:

present value computations.

Inflation is a rise in the general level of ______.

prices

According to the text, there are ______ main factors that contribute to Americans having money problems.

two

Estate taxes are calculated on the ______ of a person's property at death.

value

Time ______ of money calculations can be used to calculate progress toward achieving different financial goals.

value

If expected expenditures for food were $1,000 while the actual food costs were $750, what would be the variance?

$250 favorable

True or False: Budgets allow you to live within your income while increasing your chances of achieving your financial goals.

True

Identifying alternative courses of action is the ______ step in the financial planning process.

third

John owed $10,000 in taxes on taxable income of $40,000. If John earns an additional $1,000, he will pay an additional $280. Therefore:

his average tax rate is about 25% Reason: His average tax rate after earning the additional $1,000 would be about 25% (($10,000+$280)/($40,000+$1,000)).

The two main types of taxes on wages and salary are federal and state ______ tax and Social Security tax.

income

When consumer, business, government, and foreign borrowing increase the demand for money, interest rates tend to:

rise

Long-term financial security starts with a regular ______ plan for emergencies and unexpected bills.

savings

Developing your financial goals is the ______ step in the financial planning process.

second

The rule of thumb when saving for an emergency fund is to set aside:

three to six months of living expenses

Which of the following is a financial statement that reports what an individual or a family owns and owes?

Balance sheet

Which of the following taxes are deductible for the person/family paying them? Inheritance taxes Real estate property taxes State income taxes Estate taxes

Real estate property taxes State income taxes

When discussing personal financial growth, what is an important aspect?

Setting goals

Medical costs, taxes, and interest are all examples of _____ deductions that are subtracted from adjusted gross income.

itemized

True or false: While municipal bonds pay a lower rate of interest than other types of bonds, the after-tax income may be higher than other types of bonds.

True Reason: Because the interest is tax free, the after-tax income might be higher than corporate bonds, especially for high income tax payers.

True or false: Income tax is calculated on adjusted gross income less deductions and exemptions.

True Reason: Deductions, and exemptions, are subtracted from your AGI to derive taxable income upon which income taxes are calculated.

Joe borrowed $100,000 (a four-year loan at 10 percent interest) on January 2, 2020. During the course of the year, he paid back $30,000 on that debt. What would his December 31, 2020 balance sheet show for this debt? Interest is an expense and not part of the loan balance.

$70,000 because the balance sheet should report what is owed on the balance sheet date.

Which of the following are the major money management activities?

- Creating and implementing a plan for savings - Storing and maintaining personal financial records - Preparing personal financial statements

Which of the following are part of evaluating alternative courses of action in the financial planning process?

- Evaluating risk - Considering the consequences of your choices - Considering inflation risk

The biggest difference between a(n) _____ IRA and a Roth IRA is that the Roth IRA contribution is not tax deductible, but after five years, its earnings are tax free.

regular

Tax avoidance means using _____ strategies to reduce taxes, while tax _____ involves using illegal means to lower tax liability.

legal; evasion

In the context of global influences, which of the following statements are true of American consumers and American businesses? - American businesses compete against foreign companies for the spending dollars of American consumers. - American businesses have no competitors in the global economy. - American consumers provide foreign companies with a market. - The global economy is solely driven by American consumption.

- American businesses compete against foreign companies for the spending dollars of American consumers. - American consumers provide foreign companies with a market.

Examples of opportunity costs do NOT include: - having enough money to fund retirement and pay for current expenses. - forfeiting interest and taking money from savings and purchasing new appliances to save energy costs. - being able to work and go to school at the same time. - accepting a low yield because you have chosen low-risk investments.

- having enough money to fund retirement and pay for current expenses. - being able to work and go to school at the same time. - accepting a low yield because you have chosen low-risk investments.

Arrange the steps involved in the process of budgeting in the correct order of occurrence.

- set financial goals - Estimate income - Budget an emergency fund and savings - Budget fixed expenses - Budget variable expenses - Record spending amounts - Review spending and savings pattern

The steps in the financial planning process can guide your ______ planning.

career

When consumer saving and investing increase, interest rates tend to:

decrease

Reviewing and revising your plan is the ______ step in the financial planning process.

final

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities is called a(n) ______ ______.

financial plan

Determining your current financial situation is the ______ step in the financial planning process.

first

The amount to which current savings will increase based on a certain interest rate and a certain time period is called:

future value

True or False: Personal balance sheet and the cash flow statement come from financial institutions, businesses, or the government.

False

True or false: Managing risk is not a financial planning activity.

False

Cash ____ is the actual inflow and outflow of cash during a given time period.

Flow

Money management involves financial activities necessary to manage current personal economic resources, while working for the achievement of long-term financial security.

True

Travel expenses should be documented in a daily log with records of mileage, tolls, parking fees, and lodging costs.

True

When planning your financial goals, what role does the economy play?

Daily economic transactions facilitate financial planning activities, which affect personal finance decisions.

Which of the following is the first step in the financial planning process?

Determine your current financial situation.

According to AICPA Insights, which of the following is a common mistake related to implementing a financial plan?

Emotional decision making

Which of the following is not a deductible tax? State and local income taxes Real estate taxes on your house Personal property taxes Excise tax

Excise tax

Which of the following are categories of taxes? Taxes on purchases Taxes on earnings Taxes on loans Taxes on property Taxes on wealth Taxes on life insurance proceeds

Taxes on purchases Taxes on earnings Taxes on property Taxes on wealth Reason: (Borrowings are not taxed. / Life insurance proceeds are not taxed.)

Taxpayers pay income taxes either through payroll _____ or through estimated tax _____.

deductions; payments

Another name used for calculating present value is ______. Compounding is the other term for future value.

discounting

The rule of 72 is used to estimate the time that it would take for your money to:

double

Determining your current financial situation involves which of the following? - Preparing your personal financial statements. - Assessing your risk. - Creating and implementing your financial action plan. - Identifying current income, savings, living expenses, and debts.

- Preparing your personal financial statements. - Identifying current income, savings, living expenses, and debts.

Which of the following can help you to achieve your financial goals? - Invest 40 percent of your annual salary in a new sports car. - Save between 5 percent and 10 percent of each paycheck. - Buy long-term bonds with deductions from every other paycheck. - Save coins in a jar at the end of each day for deposit at a future time into a savings account. - Write a check each payday to deposit into a savings account. - Have savings deducted and automatically deposited into a savings account from each paycheck.

- Save between 5 percent and 10 percent of each paycheck. - Save coins in a jar at the end of each day for deposit at a future time into a savings account. - Write a check each payday to deposit into a savings account. - Have savings deducted and automatically deposited into a savings account from each paycheck.

John has an interest rate of 7.2% on his savings account. Using the Rule of 72, his money will double in _____ years.

10 (72 / 7.2)

Samantha wants to buy a new watch that costs $100. She decides to wait a year. All other factors being equal, if inflation is 4%, the watch will cost $ next year.

104 ($100x4%=$104)

The second installment for estimated tax is due by June _____.

15

Phillip has an investment of $200 that is expected to earn 10% annually. How much will the investment be worth at the end of the second year if the investment earns interest compounded annually?

242 ($200 X 0.10 X 1 =$20 in interest. $200 + $20 = $220 at the end of the first year. At the end of the second year he'll have: $220 X 0.10 X 1 =$22 in interest. $220 + $22 = $242).

Tom needs a new washing machine. A new one costs $400. He decides to save and buy one next year. All other factors being equal, if inflation is 4%, the washing machine will cost $_____ next year.

416 (400x4%= $16) ($16+$400= $416)

Which of the following types of interest expense is not deductible?

Automobile loan interest

Which of the following statements is NOT true? - The steps of the financial planning process can provide an approach to career planning. - Career choices require periodic evaluation of trade-offs related to various factors. - The average person changes jobs seven times in a lifetime. - Career choice decisions do not have risks and opportunity costs.

Career choice decisions do not have risks and opportunity costs.

The two documents considered to be part of personal financial statements include the personal balance sheet and which of the following?

Cash flow statement

Purchase receipts, insurance policies, tax forms, and which of the following are the basis of financial recordkeeping?

Credit card statements

Choosing to save a larger amount each month is an example of which possible course of action that is a part of step three in the financial planning process?

Expanding the current situation

True or false: A tax deduction reduces tax liability directly, dollar for dollar.

False Reason: A tax deduction reduces taxes indirectly by the amount of the tax rate. On the other hand, a tax credit would result in a direct dollar-for-dollar reduction.

True or false: Income includes only those earnings that you are actively involved in earning, such as salaries and income from managing a business.

False Reason: Income includes not only earned income but also investment and passive income--both of which do not involve activities that you are engaged in.

As "Tax Freedom Day" came in mid-April, it means that the portion of the year people work to pay their taxes is represented by January 1 to:

Mid-April

Which of the following are categories of taxes? Taxes on loans Taxes on earnings Taxes on property Taxes on wealth Taxes on wealth Taxes on purchases Taxes on life insurance proceeds

Taxes on earnings Taxes on property Taxes on wealth Taxes on purchases

Which of the following statements are true about a balance sheet that you are reviewing on 1/15/2021 that shows an "as of" date of 12/31/2020 and assets of $600,000 and liabilities of $425,000? - The net worth is $175,000 as of 12/31/2020. - The assets as of 1/15/2021 have a market value of $600,000. - The liabilities, which don't change much, are $425,000 as of 12/31/2020 and 1/15/2021. - The net worth is $175,000 as of 1/15/2021.

The net worth is $175,000 as of 12/31/2020.

True or False: Net worth is found by subtracting liabilities from assets.

True

True or False: The steps to prepare a budget include setting financial goals, estimating expected income, budgeting for emergency funds and expenses, recording actual expenses, calculating variances, and evaluating.

True

True or False? People should prepare a personal balance sheet on a periodic basis to evaluate financial progress.

True

True or false: A key factor in making financial decisions is time value of money.

True

True or false: Income tax is paid during the year through withholding from paychecks and/or estimated payments.

True

When evaluating your budget, you should review and perhaps revise your financial goals and budget allocations and review your financial progress.

True

American consumers spend dollars on goods and services. The goods and services are manufactured or offered by American companies and companies from other countries. This is an example of:

a global economy and foreign competition.

The main purpose of the Federal Reserve is to ______.

act as the central bank and maintain an adequate money supply

Understanding how the ages of dependents will affect your savings goal is a part of step four in the financial planning process, which involves evaluating your ______.

alternatives

You can file Form 4868 to obtain a(n) ______ six-month extension on filing an income tax return by filing the proper forms with the IRS before the April 15 filing deadline.

automatic

The measure of the average change in the prices urban consumers pay for a fixed "basket" of goods and services is called the:

consumer price index

When people first begin planning for retirement, saving for a child's college education, and planning the purchase of a vacation home, these are usually:

long-term goals

According to the text, you should do a complete review of your finances at least:

once a year

Money management refers to the daily financial activities necessary to manage current ______ economic resources while working toward long-term financial security.

personal

Rachel has been shopping for a new refrigerator over the course of three days and has been putting all her household chores on hold. She finds a refrigerator that fits her needs and purchases it. This is an example of:

personal opportunity costs.

The major categories of taxes are taxes on ______, property, wealth, and earnings.

purchases

According to the text, what are the main reasons Americans have financial problems?

- Poor planning and weak management of money habits. - Advertising efforts and availability of goods encourage overspending.

Interest rates are affected by the following: - demand for money. - supply of money. - the cost of real estate only. - time value of money.

- demand for money. - supply of money.

After considering the alternative courses of action to reach financial goals, one of the possible courses of action is to ______.

Continue the same course of action

Opportunity costs can be viewed in terms of_____ and _____ resources.

- personal resources. - financial resources.

Examples of opportunity costs include: - trading in a large car with poor gas mileage for a smaller car that is fuel-efficient. - not having as much money in savings because you purchased new appliances to save energy costs. - having enough money to save for retirement and to pay for current expenses. - delaying investment while waiting for the time value of money to increase the pay received. - not getting a high yield because you have set aside funds in a low risk investment.

- trading in a large car with poor gas mileage for a smaller car that is fuel-efficient. - not having as much money in savings because you purchased new appliances to save energy costs. - delaying investment while waiting for the time value of money to increase the pay received. - not getting a high yield because you have set aside funds in a low risk investment.

Key factors for most people in making financial decisions include:

- time value of money - inflation costs - financial opportunity costs

True or false: Financial goals should be specific, realistic, measurable, have a time frame, and imply the type of action to be taken.

True

Which of the following statements are true about software and taxes? - You can save time while preparing Form 1040 and its accompanying schedules. - Software packages such as H&R Block At Home and TurboTax help users prepare and file returns. - You can directly submit your tax return without preparing Form 1040 by using a spreadsheet program. - A spreadsheet program can help you keep track of income and expenses as the year plays out.

- You can save time while preparing Form 1040 and its accompanying schedules. - Software packages such as H&R Block At Home and TurboTax help users prepare and file returns. - A spreadsheet program can help you keep track of income and expenses as the year plays out.

Which of the following provide accurate explanations of net worth?

- The amount you would have if you sold the assets and paid off the liabilities - Assets minus liabilities

Which of the following statements is true? - An adequate emergency fund is usually 3-6 months of living expenses - An adequate emergency fund is usually 3-6 months of gross pay - An emergency fund should be invested in stocks - An adequate emergency fund is 9-12 months of take home pay

An adequate emergency fund is usually 3-6 months of living expenses