Personal Fin- Exam I Review

Long-term goals are typically for periods of over 6 years.

True

Your house is an example of a tangible asset

True

GDP refers to the total earnings of American workers during a year

false

If you have any earned income, you are required to file a tax return

false

Income shifting refers to the process of transferring income from the taxpayer to the IRS

false

Income tax refunds are automatically sent to those who qualify for refunds no later than April 15

false

One should quickly make important financial decisions soon after a financial shock, such as death or divorce.

false

Saving $3,000 for a large, flat-screen TV within the next 3 years is an example of a short-term goal.

false

Tax-deferred income is better than tax-free income

false

The Consumer Price Index (CPI) is the amount of goods and services each dollar buys at a given point in time.

false

The balance sheet equation is assets plus liabilities equals net worth

false

The best place to keep a budget is in a safe deposit box.

false

The income statement includes information on your latest paycheck

false

There is no limit on the amount of Social Security withheld annually

false

When the income statement indicates a surplus, this may be used to increase net worth by increasing assets or decreasing liabilities

true

You are more likely to achieve your goals if a definite goal date is set

true

Liquid assets are stocks, bonds, and mutual funds

False

You are preparing your own tax return. The least costly source for answering your questions would be a. IRS 800 numbers. b. private preparation service. c. tax accountant. d. tax lawyer. e. local post office

a. IRS 800 numbers

Which of the following goals is stated in a way that is most useful for developing a financial plan? a. Make a $12,000 down payment on an automobile in 4 years b. Retire with a comfortable lifestyle in 25 years c. Buy a $125,000 house in 6 years d. Purchase a $40,000 boat e. Join the country club when retired in 20 years

a. Make a $12,000 down payment on an automobile in 4 years

____ income is gross income less tax deductions and payments for insurance and retirement savings. a. Take-home b. EBIT c. Adjusted gross d. Taxable e. Tax-exempt

a. Take-home

On which of the following types of income would you normally have income tax withheld? a. Tips b. Interest c. Dividends d. Capital gains e. Self-employment income

a. Tips

You have no employer provided pension plan; your IRA contributions are treated as a. an adjustments to gross income. b. an additional personal exemption. c. part of the standard deduction. d. an itemized deduction. e. a tax credit

a. an adjustments to gross income

The most important financial planning for young people concerns a. career. b. insurance. c. investment. d. taxes. e. retirement

a. career

Your take-home pay is what you are left with after subtracting withholdings from your a. gross earnings. b. net earnings. c. taxable income. d. adjusted gross income. e. tax exempt income.

a. gross earnings

If your statement of income and expenditures shows a deficit, you may have a. increased your debts. b. increased your assets. c. added to savings. d. bought additional insurance. e. paid off some of your debts.

a. increased your debts

The Wilson family's short-term goals might include a. setting up an emergency fund of three months' income b. buying a house c. sending the kids to college d. planning to retire at age 60 e. all of these

a. setting up an emergency fund of three months' income

Bryon's assets include his furniture, clothing and an automobile. His assets are in which of the following asset classes? a. tangible b. financial c. liquid d. a and b e. b and c

a. tangible

Utility refers to a. the satisfaction you receive from purchasing something. b. how much money you receive during the year. c. the total of your spending for the year. d. the value of your investments at any given time. e. none of these.

a. the satisfaction you receive from purchasing something

You would not include ____ on an income and expenditures statement. a. the value of your stock portfolio b. taxes withheld c. utilities paid d. mortgage payments e. charitable payments

a. the value of your stock portfolio

Connie is a 20 year old college student who earned $8,000 and spent it all on her support during the year. Her parents may claim her as a tax dependent as long as a. they contribute more than half her support for the year. b. she is under 21. c. she makes under $10,000. d. she lives at home. e. all these things are true

a. they contribute more than half her support for the year

When estimating income for the income and expense statement, you should a. use gross income. b. include expected pay increases. c. adjust for inflation. d. use net income. e. none of these

a. use gross income

____ is not withheld from your earnings as a pay-as-you-go deduction. a. Employee contribution to social security b. Employer contribution to social security c. Federal income tax d. State income tax e. all these are withheld

b. Employer contribution to social security

Henry is married to Lillian, and they have two dependent children. Henry can legally file using which of the following filing statuses? a. Single b. Married filing jointly c. Head of household d. Qualifying widow e. Any of the above

b. Married filing jointly

This is a measure of inflation based on changes in the cost of a market basket of consumer goods and services: a. inflation b. consumer price index (CPI) c. purchasing power d. none of the above

b. consumer price index (CPI)

The tax rate on capital gains for most people is a. the same as on regular income. b. dependent on the time the asset was owned. c. dependent on the amount of profit earned. d. higher than the rate on regular income. e. None of these.

b. dependent on the time the asset was owned

While you are still working, you should be managing your finances for retirement planning. Which of the following is not a goal of your retirement planning? a. maintaining your standard of living b. effectively passing wealth on to heirs c. a vacation home or boat d. travel

b. effectively passing wealth on to heirs

The amount of money we set aside for future consumption will be determined by a. our level of current wealth. b. how much we currently earn and spend. c. our education level. d. the current needs of our family. e. the cost of life's necessities.

b. how much we currently earn and spend

The income statement includes a. income, liabilities, net worth. b. income, expenditures, surplus or deficit. c. expenditures, net worth, surplus or deficit. d. net worth, surplus, income or expenditures. e. savings, surplus, income or expenditures

b. income, expenditures, surplus or deficit.

Typically state governments get most of their tax revenue from a. property taxes and excise taxes. b. sales taxes and income taxes. c. licensing fees and income taxes. d. excise taxes and sales taxes. e. income taxes and property taxes.

b. sales taxes and income taxes

Mike and Teresa Garza have a monthly gross income of $5,000, but they pay $1,000 per month in taxes. They also pay $2,000 per month in various loan payments. What is their debt service ratio? a. 20% b. 30% c. 40% d. 50% e. 60%

c. 40%

The need for budget adjustments is indicated when a. income is stable. b. account deficits and surpluses balance out. c. account deficits are more than surpluses. d. a new calendar year begins. e. short-term financial goals are achieved

c. account deficits are more than surpluses

Budgets are a. restrictive. b. complicated. c. are forward looking. d. permanent. e. unnecessary

c. are forward looking.

Which of the following is NOT one of the three basic categories for individual income? a. active income b. passive income c. gross income d. portfolio income

c. gross income

The amount of goods and services each dollar buys at a given point in time is: a. inflation b. consumer price index (CPI) c. purchasing power d. none of the above

c. purchasing power

The best approach to solving the problem of an annual budget deficit is generally to a. liquidate enough savings to make up the deficit. b. sell stock to make up the deficit. c. reduce flexible expenditures. d. reduce fixed expenses. e. get a part time job.

c. reduce flexible expenditures

Sam and Lele are in their late 20s with 3 young children. Their most important financial planning concerns would probably include all of the following except a. asset acquisition planning. b. liability and insurance planning. c. retirement and estate planning. d. savings and investment planning. e. employee benefit plannin

c. retirement and estate planning

A ____ would be most likely to have to pay estimated taxes. a. school teacher b. manager for a major industrial firm c. self-employed plumber d. union worker e. corporate attorne

c. self-employed plumber

Your average tax rate is your a. adjusted gross income divided by tax withheld. b. adjusted gross income divided by tax liability. c. tax liability divided by taxable income. d. taxable income divided by tax withheld. e. gross income divided by tax refund.

c. tax liability divided by taxable income

The income shifting tax strategy is least effective when income producing gifts are given to persons a. over age 65. b. over age 50. c. under age 14. d. under age 25. e. Age is not an issue

c. under age 14

Mr. and Mrs. Sanborn are retired and have had several medical problems this year. Their financial matters for 2008 are as follows: Adjusted Gross Income $65,000 Un-reimbursed Medical Expenses $14,500 How much would the Sanborns' medical expenses contribute to their total itemized deductions? a. $ 0 b. $ 4,875 c. $ 7,500 d. $ 9,625 e. $14,500

d. $ 9,625

Sonny and Cher have a net worth of $35,000 and total assets of $200,000. If their revolving credit and unpaid bills total $2,200, what are their long-term liabilities? a. $115,000 b. $140,000 c. $142,200 d. $162,800 e. $165,000

d. $162,800

____ would be considered taxable income. a. An inheritance from your grandmother's estate b. A gift from your aunt c. Child support payments d. Alimony received e. A tuition scholarship

d. Alimony received

A declaration of estimated taxes is made by filing a. Schedule B. b. Form 1040 EZ. c. Schedule Z. d. Form 1040 ES. e. Form 1040 A.

d. Form 1040 ES

Pete and Pam are married with four dependent children. Pete and Pam can legally file using which of the following filing statuses? a. married filing separately b. married filing jointly c. head of household d. a and b e. a, b, and c

d. a and b

____ tends to increase and then decrease over the life cycle. a. Debt b. Income c. Emergency funds d. a and b e. a, b, and c

d. a and b

Jackson is a 25 year old college student whose parents contribute to his support. His parents may claim him as a tax dependent in 2008 as long as a. they contribute more than half of his support for the year. b. he is under 30. c. he makes under $3,200. d. a and c. e. a, b, and c

d. a and c

The standard deduction is a blanket deduction that depends on the taxpayers a. filing status b. age c. vision d. all of the above.

d. all of the above

Financial goals should be a. specific. b. attainable. c. prioritized. d. all of these e. none of these

d. all of these

Your income is directly related to your a. geographic location. b. age. c. education. d. all of these e. none of these

d. all of these

The three parts of your balance sheet are a. income, liabilities, balance. b. assets, expenditures, balance. c. assets, liabilities, balance. d. assets, liabilities, net worth. e. income, liabilities, net worth.

d. assets, liabilities, net worth

Balance sheet liabilities should be recorded at their a. original outstanding balance. b. year-end outstanding balance. c. average outstanding balance. d. current outstanding balance. e. none of these

d. current outstanding balance.

Another term sometimes used instead of net worth is a. assets. b. net debts. c. long-term liabilities d. equity. e. liquid assets

d. equity

On an income statement covering January 1 to June 30, ____ would not be included as income. a. wages and salaries received in that six months b. interest received on June 30 c. auto sold with payment received May 15 d. inheritance granted in April, to be paid in September e. income tax refund received April 14

d. inheritance granted in April, to be paid in September

A personal computer could not be used to a. prepare detailed budgets. b. analyze investment possibilities. c. store and retrieve financial information efficiently. d. make financial decisions. e. keep insurance coverage inventories

d. make financial decisions.

The main reason to do personal financial planning is to a. minimize overall costs. b. minimize overall utility. c. assign monetary value to consumption. d. maximize overall utility. e. stabilize overall utility.

d. maximize overall utility.

Medical and dental expenses may be included as itemized deductions a. when they exceed 4% of adjusted gross income. b. up to a maximum of $7,500 per individual per tax year. c. only if they do not exceed 7% of gross income. d. only in the amount in excess of 7.5% of adjusted gross income. e. always.

d. only in the amount in excess of 7.5% of adjusted gross income

The average propensity to consume refers to the a. dollars of income spent for current consumption. b. percentage of income saved. c. expenditures for the minimum necessities of life. d. percentage of income spent for current consumption. e. fact that people with higher incomes spend more for the necessities of life.

d. percentage of income spent for current consumption.

A capital gain is the result of a. selling an asset for less than purchase price. b. holding an asset that has appreciated. c. selling an asset at the same price of purchase. d. selling an asset for more than purchase price. e. None of these.

d. selling an asset for more than purchase price

The term most closely associated with quality of life is a. wealth. b. consumption. c. education. d. standard of living. e. money

d. standard of living

The hospitalization portion of the Social Security tax is paid on ____ of one' earned income. a. the first $10,000 b. the first $50,000 c. the first $90,000 d. 50 percent e. 100 percent

e. 100 percent

The current FICA withholding rate is a. 6.0%. b. 6.75%. c. 7.25%. d. 7.5%. e. 7.65%

e. 7.65%

Kathy purchased 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 of the following are true? 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

e. All are correct except c

____ is the financial goal most people think is least important. a. Living well now b. Being financially independent c. Sending children to college d. Providing for retirement e. Leaving a large estate

e. Leaving a large estate

Inflation affects a. long-term financial goals. b. short-term goals. c. budget expenditures. d. asset values. e. all of these

e. all of these

A cash budget should help you to a. achieve your short-term financial goals. b. implement disciplined spending. c. eliminate impulse spending. d. allocate funds to savings and investments. e. do all of these

e. do all of these

When a cash surplus exists on your income and expenditure statements, you can a. acquire assets. b. pay off existing debts. c. increase your savings. d. increase your investments. e. do any of the above.

e. do any of the above

The three key groups in the economic environment are a. government, regulation, and business. b. government, consultants, and business. c. consumers, economists, and business. d. consumers, business, and managers. e. government, consumers, and business.

e. government, consumers, and business

The total amount that you owe for income tax in one year is your tax a. withholdings. b. credit. c. rate. d. refund. e. liability.

e. liability

The four stages of an economic cycle would not include a. depression. b. expansion. c. recession. d. recovery. e. stagnation.

e. stagnation

A ____ is an example of a real asset. a. stock b. bond c. mutual fund. d. savings account e. stamp collection

e. stamp collection

A budget is an orderly estimate of income and expenditures

true

Assets purchased on credit should be included on the asset side of the balance sheet

true

Estimated tax payments must be made by those who do not have taxes deducted from their earnings.

true

Financial assets are intangible assets acquired to achieve long-term personal financial goals

true

Municipal bond investments typically provide tax-free interest income

true

Russ and Lois got married December 30. Since they were single for most of the year, however, they can legally file as married taxpayers in the year of the wedding

true

The level of the debt service ratio would indicate your ability to meet loan payments out of current income

true

Using the future value calculations to estimate the funds needed to meet a goal takes compounding into account.

true

Using time value of money is important when planning for long-term goals

true