Finance 008
The tax designed to ensure that those who receive tax breaks also pay their fair share of taxes is called the Marginal tax rate. Average tax rate. Income tax rate. AMT. Total tax rate.
AMT
The stages in the family situation and financial needs of an adult is called the Personal economic cycle Adult life cycle Budgeting procedure Financial planning process
Adult life cycle
When calculating federal income taxes, what increases "gross income"? Exclusions Tax-exempt income Tax deductions Alimony received Tax-deferred income
Alimony received (increases gross income, prior to tax changes after this book edition)
The main purposes of personal financial statements are to Provide data for preparing tax forms or applying for credit. All of the above are correct Report your current financial position. Maintain information about your financial activities.
All of the above are correct
The major sections of Form 1040 include all of the following except Signature. Tax credits. Filing status and exemptions. All of these are major sections of Form 1040. Adjustments to income (AGI).
All of these are major sections of Form 1040.
The use of property or savings to secure a loan relates to Collateral. Conditions. Character. Capital. Capacity.
Collateral
Which of the following will increase the net worth of a household? Invest in possessions whose values do not increase Increase spending by $5 per day Decrease saving by $50 per month Decrease spending by $5 per day Increase the amount borrowed for major purchases
Decrease spending by $5 per day
A credit report includes All previous employers Detailed credit information Bank statements Credit card statements
Detailed credit information
An example of a variable expense is a(n) Installment loan payment. Electric bill. Monthly train ticket for commuting to work. Monthly allocation for life insurance. Mortgage or rent payment.
Electric bill.
A budget is a record of how a person or family has spent their money. TRUE FALSE
FALSE
A duplex is a house with two or more separate dwellings. FALSE TRUE
FALSE
A mortgage is an amount borrowed to buy a tv or other personal possession. TRUE FALSE
FALSE
An approved mortgage application usually locks in an interest rate for 60-120 days. FALSE TRUE
FALSE
Consumer credit refers to the use of debit cards for personal needs. TRUE FALSE
FALSE
Federal income tax returns must be filed by April 1 of each year. FALSE TRUE
FALSE
If you pay an extra $100 per month on your mortgage, your total loan principal will decrease and your total interest will remain the same. FALSE TRUE
FALSE
If your tax payments are less than the amount of income tax you owe, you are entitled to a refund. TRUE FALSE
FALSE
In an organized system of financial records, credit card records belong in a safe deposit box. FALSE TRUE
FALSE
Mortgage points are paid to the lender at the end of the mortgage. TRUE FALSE
FALSE
One method to spend more money is to deduct an amount automatically from your salary in a direct deposit system. FALSE TRUE
FALSE
The Real Estate Settlement Procedures Act (RESPA) requires that loan applicants be given an estimate of the closing costs after the actual closing. FALSE TRUE
FALSE
The easiest loans to obtain are also the least expensive. FALSE TRUE
FALSE
The itemized deduction allowed for an individual 65 and older is higher than the itemized deduction for a younger taxpayer. TRUE FALSE
FALSE
The longer it takes for you to pay off a bill, the less interest you pay. TRUE FALSE
FALSE
Tom needs to complete his taxes. He should be able to find a tax preparation service to complete his simple tax return for as little as $15. FALSE TRUE
FALSE
When Brett's apartment lease ends, he should receive his entire security deposit back even though the carpet has been damaged while he was living there. TRUE FALSE
FALSE
When Tom calculates his taxable income, he should subtract his tax credits from adjusted gross income. FALSE TRUE
FALSE
A tax credit reduces the taxable income on which the tax liability is computed. TRUE FALSE
FALSE [Tax deductions reduce your taxable income, but tax credits reduce your taxes bill dollar for dollar.]
Which of the following is NOT one of the three major credit bureaus? Trans Union. Equifax. Experian. FICO. VantageScore
FICO
The rising or falling of prices that causes changes in buying power is referred to as ____________ risk. interest-rate income inflation personal liquidity
inflation
The tangible and intangible factors that create a less than desirable situation is referred to as ____________ risk. personal income interest-rate liquidity inflation
personal
Which of the following is NOT a benefit of home ownership? Maintenance and costs of repairs and home improvements Stability of residence Deductibility of mortgage interest Deductibility of real estate taxes Personalized living location
Maintenance and costs of repairs and home improvements
Which of the following financial documents would most likely be stored in a safe deposit box or fireproof home safe? Warranties Bank statements Personal financial statements Marriage certificates W-2 forms
Marriage certificates
A tax credit has a full dollar effect in lowering taxes. TRUE FALSE
TRUE
Consumer credit dates back to colonial times where farmers came to use it extensively . FALSE TRUE
TRUE
Economists recognize consumer credit as a major force in the American economy. FALSE TRUE
TRUE
If you are a cosigner for a loan and the debt is not repaid, that fact will appear on your credit report. FALSE TRUE
TRUE
In an organized system of financial records, birth and marriage certificates belong in a safe deposit box. FALSE TRUE
TRUE
Individuals who have high income reported on Form 1099 may be required to pay estimated tax payments. FALSE TRUE
TRUE
Money management refers to day-to-day financial activities necessary to manage current personal economic resources while working toward long-term financial security. FALSE TRUE
TRUE
Open-end credit consists of loans made on a continuous basis with periodic bills for at least partial payment. TRUE FALSE
TRUE
Walt has decided to sell the home he has lived in for 50 years. The house has two bedrooms on the first floor, a finished basement, and a finished attic with a low ceiling. To prepare his home for sale, he should Keep everything "as is." Underestimate the cost of utilities. Exaggerate the size of his yard. Take steps to remove excess furniture to make areas look larger. List his house as a three-bedroom.
Take steps to remove excess furniture to make areas look larger.
Making financial decisions related to income involves all of the following except: All of these are financial decisions Taking Saving Sharing Spending
Taking
Which of the following is most correct? death certificate should be kept in a home file. Adoption papers belong in a home file. A current budget belongs in your safe deposit box. Tax records belong in a home file. Adoption papers belong in a home file. A warranty belongs in a safe deposit box. A current budget belongs in your safe deposit box.
Tax records belong in a home file.
Income that is taxed at a later date is Tax-deferred income. Exclusions from income. Earned income. Tax-exempt income. Adjusted gross income.
Tax-deferred income.
According to Tax Service Warnings, who is responsible for supplying accurate and complete information for completing a tax return? Professional tax preparer Taxpayer IRS enrolled agent Taxpayer's dependents Taxpayer's attorney
Taxpayer
Perhaps the greatest disadvantage of using credit is The convenience offered instead of using cash. The increase in total purchasing power. The increased satisfaction during present and future income periods. The float from using credit. The temptation to overspend.
The temptation to overspend.
If you are denied credit, You are entitled to a free copy of your credit report. You have a legal right to sue the company that denied you credit. The denial will remain in your credit file for 10 years Your parent can purchase a copy of your credit report You have a legal right to sue the credit bureau
You are entitled to a free copy of your credit report.
Jason's household consists of himself, his wife, and their 2-year-old daughter. How much can Jason claim for his exemptions in 2012? $15,000. $3,950. $11,850. $1,000. $7,900.
$11,850. ($3,950 x 3)
If Melinda Miller estimates that her $100 weekly grocery bill will increase at an annual inflation rate of 4%, what should her weekly grocery bill be in 3 years? $112.50 $100.00 $112.00 $114.00 $121.60
$112.50
If you have a $150,000 30-year 5% mortgage, how much of your first monthly payment of $805.50 would go toward principal? $625.00 $665.28 $7,500.00 $805.50 $180.50
$180.50
If Vince charged $200 on his credit card with 18% APR and he paid his balance in full within the grace period, how much was he required to pay? $236.00 $200.00 $3.00 $182.00 $18.00
$200.00
A family with $100,000 in assets and $60,000 of liabilities would have a net worth of $100,000. $20,000. $60,000. $40,000. $160,000.
$40,000.
If you want $1,000 three years from now and you earn 4 percent on your savings, how much do you need to deposit? $1,000 $1,030 $1,040 $889 $885
$889
Information about a personal bankruptcy may be reported in your credit file for 1 year. Permanently. 3 years. 7 years. 10 years.
10 years.
Which of the following is NOT a valid form for filing federal income taxes? 1040A 1040Z 1040 1040X 1040EZ
1040Z
Financial experts recommend monthly savings of ____ of gross income. 5-10% 25-35% 0% 50% 20%
5-10%
Which of the following electronically subtracts money from your savings or checking account to pay for goods and services? Closed-end credit A debit card A gift card A credit card A home equity loan
A debit card
The saving component of financial planning focuses on long-term security and includes: Bankruptcy counseling A realistic budget for your current financial situation A current will A regular savings plan for emergencies Minimizing transportation expenses through careful planning
A regular savings plan for emergencies
What step can you take if your credit application is denied? Reapply for credit once 30 days have passed. File a complaint against the merchant. Sue the credit rating agency. Borrowers do not have any rights provided by law. Ask the reasons why you were denied credit.
Ask the reasons why you were denied credit.
The difference between the amount budgeted and the actual amount received or spent is called the Cash outflow. Variable expense. Income. Cash inflow. Budget variance.
Budget variance.
Which of the following short-term goals is stated most clearly using the SMART approach? Set up an emergency fund Invest $50 per month for the next 12 years for my nephew's college fund Buy a car for less than $15,000 within 6 months Purchase a house with a mortgage no greater than $150,000 within 5 years Retire in 10 years at age 65 with $2,000,000 in my 401(k) account
Buy a car for less than $15,000 within 6 months
$500 on deposit at 6% for 6 months would earn $20. T/F
False
Opportunity costs refer to money already spent. FALSE TRUE
False
There are only 3 possible courses of action when developing alternatives for decision making. T/F
False
Steve Wilson wants to deposit $150 per month into an account earning 4 percent for the next 3 years, so he can purchase a used car at that time. What type of computation would he use to determine the amount he will have for his purchase? Simple interest Present value of a single amount Present value of an annuity Future value of a single amount Future value of an annuity
Future value of an annuity
The time value of money refers to: Changes in interest rates due to changes in the supply and demand for money in our economy. Personal opportunity costs such as time lost on an activity. Financial decisions that require borrowing funds from a financial institution. Increases in an amount of money as a result of interest earned. Changing demographic trends in our society.
Increases in an amount of money as a result of interest earned.
The amount levied on the value of property bequeathed by a deceased person is Sales tax. Inheritance tax. Social Security tax. Excise tax. Real estate property tax.
Inheritance tax.
If you do not pay back any of the loan amount for a portion of the loan period, you have a(n) FHA loan. Interest-only mortgage. Home equity mortgage. Buy-down ARM
Interest-only mortgage.
Which of the following long-term goals is stated most clearly using the SMART approach? (S-specific; M-measurable, A-action-oriented, T-time based) Purchase a house with a mortgage no greater than $150,000 within 5 years Retire in 10 years at age 65 Invest $50 per month for the next 12 years for my nephew's college fund Set up an emergency fund Buy a car for less than $15,000 within 6 months
Invest $50 per month for the next 12 years for my nephew's college fund
Which is NOT true about the Fair Credit Reporting Act? It regulates the use of credit reports. It requires deletion of out-of-date information. It places limits on who can obtain a report It gives borrowers the right to know why they are denied credit.
It gives borrowers the right to know why they are denied credit.
This gives the landlord the right to take legal action against a tenant for nonpayment of rent or destruction of property. Sublease Lease Rental statement Lessor Lessee
Lease
The tenant is the Lessor. Sublease. Lease. Owner. Lessee.
Lessee.
Nancy is married to Jerry and needs to complete her tax form. They both earn about the same amount of money each year. What filing status would be best for them? Head of household Single Married, but filing individually Married, filing a joint return Qualifying widow or widower
Married, filing a joint return
When creating a personal balance sheet, which of the following is a current liability? Medical bill Mortgage Auto loan Educational loan Checking account
Medical bill
Discretionary income equals Gross income. Money left over after paying for housing, food, and other necessities. The amount being saved each month. Social Security taxes.
Money left over after paying for housing, food, and other necessities.
When calculating the debt-to-equity ratio, the following is NOT included: Auto loan balances. Installment debt Net worth Mortgage balance. Credit card balances.
Mortgage balance.
Take-home pay is also called Discretionary income. Deductions. Net pay. Gross income. Monthly savings.
Net pay.
The amount you would have left if all assets were sold and all debts were paid in full is called your Total income. Net assets. Net worth. Budgeted expenses.
Net worth.
When creating a budget, which of the following statements is true? Include in income the bonuses and gifts you expect to receive. Common financial problems can be maximized through budgeting. Numbers in the budget are estimates. It is easier to create a budget if your earnings vary by season. It is better to overestimate your income for next year.
Numbers in the budget are estimates.
During the closing for a home purchase , you should Review zoning laws for the municipality where the home is located. Order an appraisal. Sign documents and pay half of the settlement costs. Schedule an inspection of the condition of the home. Pay all closing costs, settle last-minute details, and sign documents
Pay all closing costs, settle last-minute details, and sign documents
A worker's primary goal should be to: Pay his or her fair share of taxes while taking advantage of appropriate tax benefits. Pay the average tax rate for people working in his or her industry. Pay his or her taxes using estimates for income and deductions. Pay no taxes of any type. Pay no income taxes.
Pay his or her fair share of taxes while taking advantage of appropriate tax benefits.
How long should you keep your most current will? Permanently. Three years. No need to keep it since your lawyer probably has a photocopy. Seven years.
Permanently.
Many Americans have money problems because of Not enough advertising to make effective decisions Too many clearly defined goals Poor planning and weak money management habits Proper use of credit Controlled spending
Poor planning and weak money management habits
Which of the following expenses is NOT usually incurred by a tenant? None of these are incurred. Renter's insurance. Property taxes. Security deposit. Utilities (other than water).
Property taxes.
A reverse mortgage Provides older home owners with tax-free income in the form of a loan that is repaid when the home is sold or the home owner dies. Is the same thing as a second mortgage All of these are correct Allows a homeowner to access a line of credit program None of these are correct
Provides older home owners with tax-free income in the form of a loan that is repaid when the home is sold or the home owner dies.
Joseph needs to complete his income taxes for the year. He has already calculated his adjusted gross income. What does he need to do next? Add his tax-exempt income. Add his tax exemptions. Subtract his tax-exempt income. Subtract his itemized deductions.
Subtract his itemized deductions.
Which of the following is a disadvantage of renting? Taking possession of a rental unit is less expensive than buying a home. Renters usually do not have to be concerned with maintenance and repairs. Renting can be more convenient for those who move frequently. Tenants cannot take tax deductions for mortgage interest and property taxes. Renters have fewer responsibilities than home owners.
Tenants cannot take tax deductions for mortgage interest and property taxes.
The consumer price index measures: The average change in prices of goods and services of urban consumers The change in prices of goods and services around the world The prices of goods and services in Bolivia The prices of goods and services in the United States None of the above
The average change in prices of goods and services of urban consumers
Most tenants sign a lease. Which of the following is part of a lease agreement? The interest rate for a lease loan. The sale date. The conditions under which the landlord may enter the apartment. The amount of the down payment. The name and address of the buyer.
The conditions under which the landlord may enter the apartment.
Who is responsible for a loan repayment? The store granting credit The credit card company The cosigner and/or the borrower The bank The government
The cosigner and/or the borrower
Which of the following is NOT correct? Home ownership usually has long-term financial advantages. Renting offers mobility. Traditional financial guidelines suggest that your home should cost about five times your annual income. Lifestyle and financial factors should be analyzed to determine if you should rent or buy. Renting is usually less costly in the short run.
Traditional financial guidelines suggest that your home should cost about five times your annual income.
Purchasing a car is an example of a durable-product goal. TRUE FALSE
True
Retirement planning includes thinking about your housing situation, recreational activities, and possible volunteer or part-time work. T/F
True
Short-term goals are usually achieved within the next year or so. T/F
True
The Rule of 72 is: A tool to determine the number of years until retirement for an employee The number of steps required to complete a financial plan Used to calculate interest rates for savings Used to estimate how fast prices will double using a given annual inflation rate The legal code for requiring companies to provide a match on retirement savings
Used to estimate how fast prices will double using a given annual inflation rate
Which of the following is NOT correct? Using credit occurs when you use water or electricity Using credit cards usually makes returning merchandise without a receipt easier. Using credit allows consumers to enjoy goods and services now and pay later. Using credit is appropriate to pay for medical emergencies. Using credit can increase the amount of money that will be available to spend in the future.
Using credit can increase the amount of money that will be available to spend in the future.
At the end of the year, employees receive a ____ form that reports annual earnings and the amounts deducted for taxes from their employers. W-4 W-2 1099 1040 Schedule A
W-2
Ricky has a conventional mortgage. He can monitor the reduction of his loan balance through his payments by using _____ information. lock PMI escrow points amortization
amortization
Madeline wants to purchase a larger house. However, she has not yet sold her current home. She may want to include a(n) ________ in her offer. dual agent purchase agreement contingency clause counteroffer appraisal
contingency clause
