Test 1

The current financial position of an individual or family is best presented in the form of a:

balance sheet

Annie was required to clarify or document minor questions about her tax form by a mail inquiry. She participated in a(n):

correspondence audit

Money management refers to:

day-to-day financial activities

Who is less likely to be harmed by inflation?

borrowers

Which of the following ratios indicates the amount of a person's earnings that goes for payments for credit cards, auto loans, and other debt (except mortgage)?

debt-payments ratio

A current ratio of 2 means:

$2 in liquid assets are available for every $1 of current liabilities

If you begin saving $2,000 a year at 5 percent (from age 22 to age 30 or 9 years), what will these funds grow to in this time period?

$22,054

Rebecca Wilson budgeted $395 for a new wardrobe in June. She actually spent $425. What is her budget variance?

$30 deficit

Using the following table, calculate the taxes for an individual with taxable income of $36,000. 10% | Up to $9,875 12% | $9,876-$40,125 22% | $40,126-$85,525 24% | $85,526-$163,300 32% | $163,301-$207,350 35% | $207,351-$518,400 37% | Over $518,401

$4,122.50

Peter filed his federal income taxes, but he needs to make a correction to his income. Which form should he use?

1040X

If a $10,000 investment earns interest of $1,200 in 1 year, what is its rate of return?

12%

George Franklin paid taxes of $4,250 on a taxable income of $31,000. What was his average tax rate?

13.71%

Given the following information, calculate the current ratio:(Round your answer to 2 decimal places.) Liquid assets = $8,700 Monthly credit payments = $1,750 Monthly savings = $1,330 Net worth = $101,000 Current liabilities = $3,500 Take-home pay = $4,200 Gross income = $9,200 Monthly expenses = $5,840

2.49

Given the following information, calculate the debt ratio percentage: Liabilities = $25,000 Liquid assets = $5,000 Monthly credit payments = $800 Monthly savings = $760 Net worth = $75,000 Take-home pay = $2,300 Gross income = $3,500 Monthly expenses = $2,050

33.33%

Given the following information, calculate the debt-payments ratio:(Round your answer to 2 decimal places.) Liabilities = $39,500 Liquid assets = $7,900 Monthly credit payments = $1,550 Monthly savings = $1,210 Net worth = $95,000 Current liabilities = $3,100 Take-home pay = $3,800 Gross income = $8,000 Monthly expenses = $5,040

40.79%

Which of the following situations describes a person who could be insolvent?

Assets $40,700; liabilities $47,300

Present value computations are also referred to as:

Discounting

Which of the following is NOT a tax credit?

Domestic tax credit

Which of the following is an example of a financial opportunity cost?

Forgoing wages to attend school

An example of fixed expenses are:

Home rental payments.

An advantage of investing in a 401(k) plan is the:

Possibility of receiving an employer match on your contributions.

To calculate the time value of money, we need to consider all of the following except the:

Type of investment.

At the end of the year, Xavier received a form from his employer that reported annual earnings and the amounts deducted for taxes. That form is called a:

W-2

Which of the following short-term goals is stated most clearly using the SMART approach?

Within the next 6 months, buy a car for less than $15,000

The first step of the financial planning process is to:

determine your current financial situation

A high debt ratio is best.

false

Interest paid on a home equity loan is not deductible.

false

Net worth is the amount owed to others.

false

One of the best tax shelters is owning a car.

false

Some people keep various documents and valuables in safe deposit boxes in banks and other financial institutions because the safety of the contents of these boxes is absolutely foolproof.

false

When Tom calculates his taxable income, he should subtract his tax credits from adjusted gross income.

false

Which of the following is NOT a tax that most people pay?

federal taxes on possessions

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

financial plan

Which of the following is a cash inflow?

income from employment

The rising or falling of prices that causes changes in buying power is referred to as ____________ risk.

inflation

Which of the following long-term goals is stated most clearly using the SMART approach?

invest $50 per month for the next 12 years for my nephews college fund

The difficulty of converting savings and investments to cash is referred to as ____________ risk.

liquidity

Discretionary income equals:

money left over after paying for housing, food, and other necessities

Rhonda Miller wants to take out a 4-year loan to purchase a car. What type of computation would she use to calculate her monthly payments?

present value of an annuity

Which of the following intermediate goals is stated most clearly using the SMART approach?

purchase a house within the next 5 years with a mortgage no greater than $150,000

Bob was married to Sandy, and they have a 12-year-old son. Sandy passed away last year. Bob needs to complete his federal income taxes for the year. What filing status could he use for 2 years after the death of his spouse?

qualifying widow or widower

Every taxpayer receives at least the standard deduction, a set amount on which no taxes are paid.

true

Social Security is an example of a tax on earnings.

true

Given the following information, calculate the net worth: Assets = $8,800Cash inflows = $7,850Cash outflows = $5,800Liabilities = $4,350

$4,450

Rebecca Wilson budgeted $399 for a new wardrobe in June. She actually spent $444. What is her budget variance?

$45 deficit

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 accumulated for his purchase?

Future value of an annuity

To develop financial goals, one should:

Identify specific, realistic goals that are measurable along with a time frame and an action plan

Susan Smith has a goal of saving $25 per month for a TV. Considering the SMART approach, Susan's goal lacks:

a time frame

The tax that is a major source of revenue for local governments is called a(n):

real estate property tax

Which of the following is NOT an action that can reduce your taxes?

taking out a consumer loan

Which of the following is most correct?

tax records belong in a home file

According to Tax Service Warnings, who is responsible for supplying accurate and complete information for completing a tax return?

taxpayer

If inflation is expected to be 8 percent, how long will it take for prices to double?

9 years

If Melinda Miller estimates that her $100 weekly grocery bill will increase at an annual inflation rate of 4 percent, what should her weekly grocery bill be in 3 years?

$112.50

Sam and Diane are completing their federal income taxes for the year and have identified the amounts listed here. How much can they rightfully deduct? (Assume itemized deductions) ● AGI: $82,000 ● Medical and dental expenses: $9,200 ● State income taxes: $3,700 ● Mortgage interest: $10,300 ● Qualified charitable contributions: $1,400

$16,400

Randy Hill wants to retire in 20 years with $1,000,000. If he can earn 10 percent per year on his investments, how much does he need to deposit each year to reach his goal? Use Exhibit 1-B. (Round your answer to the nearest dollar.)

$17,460

If Jack was in a 25% tax bracket and received a $2,900 tax deduction, by how much would his taxes be reduced?

$725

If you want $1,000 in 3 years and you earn 4 percent on your savings, how much do you need to deposit now?

$889

Place the following steps for a personal financial plan in the proper order: 1. Review and revise the financial plan 2. Identify alternative courses of action 3. Create and implement your financial action plan 4. Determine your current financial situation 5. Evaluate alternatives6. Develop your financial goals

4, 6, 2, 5, 3, 1

Recent tax credits include all of the following except the:

AMT tax credit

The equation to calculate net worth is:

Assets - liabilities = net worth

The stages in the family situation and financial needs of an adult is called the:

adult life cycle

The major sections of Form 1040 include all of the following except:

all of these are major sections of form 1040

The types of tax services available that offer professional tax assistance include:

all of these choices are correct

How long should you keep documents relating to investments?

as long as you own these items

The problem of bankruptcy is associated with overuse and misuse of credit in the ______________ component of financial planning.

borrowing

The document that would tell you what you received and spent over the past month is the:

cash flow statement

"Tax Freedom Day" represents how long the average person works to pay her or his taxes each year.

true

Cash and prizes won on television game shows are subject to both federal and state taxes.

true

In an organized system of financial records, investment records belong in a home file, home computer, or online.

true

One method to save more money is to write a check each payday and deposit it in a separate savings account.

true

When completing a cash flow statement, deductions are subtracted from gross salary to determine take-home pay.

true

The Rule of 72 is:

used to estimate how fast prices will double using a given annual inflation rate

When creating a personal balance sheet, which of the following is a real estate asset?

vacation property

You may be required to make estimated tax payments if:

you are an independent contractor