Chapter 1 quiz .., chapter 2.., Chapter 3..
The best way to resolve money disputes is to :
-communicate consistently about money matters with family and be willing to compromise.
Tangible assets are earning assets that are held for the returns they promise
False
Tangible assets are earring assets that are held fir the returns they promise:
False
The decisions you make in career planning are independent of the decisions you make in financial planning.
False
The federal government delegates its regulating economic activity function to businesses and consumers.
False
You should always spend more than what you earn.
False
Your purchase, saving, investment, and retirement plans and decisions are influenced only by the present state of the economy.
False
Which of the following will legitimately reduce an investor's tax liability?
Tax shelter
The government places constraints on the personal financial environment by the use of :
Taxation
The consumer is
The central player in the financial planning environment
The amount of goods and services each dollar buys at a given point in time Is called?
The purchasing power
Tax avoidance is legal, whereas tax evasion is illegal.
true
If your liquid assets equal $15,000 and your current debts equal $50,000, your liquidity ratio is:
333% -WRONG 30%
Jacques's total monthly loan payments amount to $1,020, while his gross income is $3,000 per month. What is his debt service ratio?
34%
Accumulating wealth for later years is called estate planning.
False
Career plans should be fixed once the long-term and short-term career goals are set.
False
Commission-based financial planners charge fees for the financial products they sell.
False
Estate planning does not include taking advantage of and managing employer-sponsored benefits.
False
Fee-only financial planners charge commission for the products they sell.
False
For employees of large firms, managing employee benefits is an important part of financial planning.
False
Most people tend to be more liberal about their expenditures during a recession or crisis.
False
Saving $3,000 for a large, flat-screen TV within the next 6 years is an example of a short-term goal.
False
One trend with a profound effect on people's standard of living is the ____________, which requires greater responsibility to manage money wisely
Two income family
_____ is equal to the net total value of all the items that an individual owns.
Wealth
Financial plans include setting goal dates, which are:
dates in the future when the goals are expected to be achieved
The first step in financial planning is to ____________.
define one's financial goals
The best way to achieve your financial objectives is to ______
develop a sound financial plan
Which of the following practices helps an individual survive in a financial crisis?
investing regularly to make money work toward achieving financial goals
Which of the following statements is true of the tax levied under the Federal Insurance Contributions Act (FICA)?
it is paid equally by employer and employee
Which of the following is true of an individual's net worth?
it is the difference between an individuals total assets and his or he total liabilities
Stocks, bonds and mutual funds are:
intangible assets
If you are married, you can legally file as a single taxpayer.
false
What is the maximum amount of adoption tax credit available for an individual?
13,400
Income tends to ____________ between the ages of 65 and 80.
Decrease
An individual's quality of life is closely tied to his or her:
Standard of living
Setting long-term and short-term career goals helps in career planning
True
Personal income taxes are:
progressive
A ____________is an example of a liquid asset.
savings account
John and Charlotte are considering contributing $1,000 to their church. This contribution will bring their total itemized deductions to $2,000. Assuming they are in the 15% marginal tax bracket, how much will they save in taxes by contributing the $1,000 to their church?
$0
Your car has a market value of $4,000, while the balance of the loan against it is now $2,500. Your ownership interest in the car is ____________.
$1,500
Michael and Sandy purchased a home for $100,000 five years ago. If its value appreciated at 6% annually, what is it worth today? (Round the answer to the nearest unit place.)
$133,823
You bought a $500 stereo on an installment plan and made two payments of $75 each during the year. On your income and expense statement for the year, you will show an expense of ____________.
$150
Your investment advisor wants you to purchase an annuity that will pay you $25,000 per year for 10 years. If you require a 7% return, what is the most you should pay for this investment?
$175,590
Mr. and Mrs. Davenport, aged 40 and 38, respectively, have three children aged 3, 6, and 13. Their financial details for 2015 are as follows: Adjusted gross income (AGI) - $65,000 Unreimbursed medical expenses - $6,750 The Davenports' claim for itemized deductions for medical expenses is ___
$250
Which of the following financial goals is most useful for developing a financial plan?
-buy a 125,000 house WRONG
Professional financial planners:
-provide services on fee or commission basis
Jamil and Vicki have one child, aged 3, for whom they paid childcare expenses of $2,500 this year. If they are eligible for a 20% dependent care credit plus child tax credit, by how much will these credits reduce their tax liability?
1,500
Peter's tax computed as per the tax rate schedule amounts to $2,000, and his tax credits amount to $500. His total tax liability is _____.
1,500
Theresa invested $5,000 in an account she expects will earn 7% annually. Approximately how many years will it take for the account to double in value? (Round the number of years to the nearest whole number.)
10
Jamil invested $9,500 in an account he expects will earn 5% annually. Approximately how many years will it take for the account to double in value? (Round off your answer to one decimal place.)
14.2
Murray (age 68, single) sold his home owned for 35 years so that he could relocate to a place that is closer to where his grandchildren live. He realized a $400,000 capital gain on the home. Murray's tax liability on capital gain is computed on _____.
150,000
Assume that your total income for the current year is $35,000. Your total expenses including taxes of $5,000 is $30,000. Your savings ratio is:
16.7%
Diana sold mutual fund shares, which she had owned for 4 years, so that she could use the proceeds to travel across Europe with her son. Diana is in the 35 percent marginal tax bracket, and her capital gains from the sale were $30,000. Diana's tax liability on the gain is _____.
4,500
Mike and Teresa have a monthly gross income of $5,000. They pay $1,000 per month toward taxes and $2,000 per month toward various loans. What is their debt service ratio?
40%
A taxpayer can file for an automatic extension of _____ months.
6
Based on the given information, Max's portfolio income is: Interest from savings account$1,000 Capital gains realized$5,000 Salary$8,000
6,000
Total assets on your balance sheet are $6,000 and liabilities are $2,000. Your solvency ratio will be ____________.
67%
If your total assets equal $87,000 and your total liabilities equal $10,000, your solvency ratio is:
88.5%
Phil has $2,000, and he needs it to grow to $4,000 in 8 years. Assuming he does not add any more money to this fund, what rate of interest would he need to earn? (Round off the rate of interest to the nearest whole number.)
9%
_____ is something we owe, which is measured by the amount of debt we incur
A liability
Which of the following statements is true about Andy if the inflation rate is increasing every year by 1 percent and there is no growth in her salary?
Andy's purchasing power will decrease
Heads of households who have more formal education _________
Annual income
Which of the following is true of budgets?
Budgets are forward looking.
Financial planning for young people primarily concerns:
Career
A decrease in the gross domestic product (GDP) would indicate that the economy is experiencing a(n) ____________.
Contraction
The Purchase of a car is an example of :
Current consumption
A carefully developed financial plan should provide for saving a portion of ____________ for deferred, future spending.
Current income
The _____ environment of your country affects the interest rates you pay on your mortgage and credit cards as well as those you earn on savings accounts and bonds.
Economic
Managing health and disability insurance is an important part of:
Employee benefit planning
Following an economic trough, the economy will often enter a period of ____________.
Expansion
Understanding the economic environment will allow you to make better _____ decisions.
Financial
Personal ____________ is a systematic process that considers important elements of an individual's monetary affairs in order to fulfill monetary goals.
Financial planning
Provide the roadmap for achieving monetary goals:
Financial plans
_____ provide the roadmap for achieving monetary goals.
Financial plans
Tax planning is most common among individuals with __________
High incomes
Our ____________ is an important factor in determining how well we live.
Income
Regardless of income or wealth, setting aside some portion of current income regularly for future
Income saved
Regardless of income or wealth, setting aside some portion of current income regularly for future use increases the amount of _______
Income saved
Regardless of income or wealth, setting aside some portion of current income regularly for future use increases the amount of ____________.
Income saved
The consumer price index (CPI) is a measure of ____________
Inflation
Which of the following is true of a budget?
It is a detailed financial forecast.
When setting financial goals, one should typically start by setting:
Long term goals
Which of the following is one of the most emotional issues in any relationship, including that with a partner, parents, or children?
Money
People with low incomes tend to be :
Old
Personal financial planning is important because it:
Results in an improved standard of living
An individual's salary will be lower if he or she lives in a(n) ____________ area.
Rural
Which of the following practices will help in dealing with unexpected financial shocks
Saving money regularly for emergency funds
Sarah starts investing in an individual retirement account (IRA) at the age of 30 earning 10 percent for 35 years. At age 65, she will get more returns as compared to those returns if she ____________
Starts investing at age 25 WRONG
The purchase of ____________ is an example of the purchase of a financial asset.
Stocks
Standard of living is defined as the necessities, comforts, and luxuries desired by an individual or a family.
True
Tax plans are closely tied to investment plans
True
The most effective way to achieve financial objectives is through personal financial planning.
True
Sam and his wife Ann purchased a home in Lubbock, Texas, in 1980 for $100,000. Their original home mortgage payment was $90,000. The house has a current market value of $175,000 and a replacement value of $200,000. They still owe $55,000 of their home mortgage payment. In their current balance sheet, their home will be reflected as:
a 175,000 assets for the market value and a 55,000 liability for the outstanding mortgage
A detailed forecast used to monitor and control expenses is called a(n) ____________.
a budget
_____ is an example of personal property.
a certificate of despoit -WRONG
Which of the following is true about the effects of an economic recession?
a decrease in unpolyment WRONG
Which of the following is an example of real property?
a garage
There is a need for budget adjustments when:
account deficits are more than surplus
Which of the following is subject to federal income tax?
alimony received
_____ will be listed as a liability on your balance sheet.
an education loan
Which of the following individuals should pay estimated taxes?
an entreprenuer
Ideally, retirement planning should begin:
as soon as one starts earning
If your _____, your net worth on the balance sheet will increase from one period to the next.
assets increase and liabilities remain constant
The three parts of an individual's balance sheet are his or her:
assets, liabilities and net worth
Sarah is a homeowner and a single taxpayer. She has owned and occupied the house as a principal residence for the last 8 years. In the current taxable year, she receives a promotion. She sells her home and moves to another area. The capital gain on the sale of the principal residence will:
be taxable excluding the first $250,000 of the gain
Which of the following is true of budgets?
budgets are detailed forward looking financial reports based on expected income and expenses
Which of the following statements is true about businesses?
businesses provide goods and services and receive payment in money
Which of the following is listed as an asset on an individual's balance sheet?
checking account
Estate planning involves:
considering how your wealth can be most effectively passed on to heirs
An economy experiences _____ after a peak
contraction
_________ is the most preferred way for one to deal with budget deficits.
cutting one's low- priority expenses
____________ is the most preferred way for one to deal with budget deficits.
cutting one's low-priority expenses
If your statement of income and expense prepared on a cash basis shows a deficit, you have:
increased your debts
The financial planning process helps in:
increasing assets
When your liabilities exceed your assets, you are ____________.
insolvent
Investment assets are required to ____________.
earn a return
Which of the following private tax preparers are required to pass an exam administered by the Internal Revenue Service (IRS)?
enrolled agents (Eas)
Which of the following is a stage in preparing a cash budget?
estimating expenses
_____ are the deductions from adjusted gross income (AGI) that are based on the number of persons supported by the taxpayer's income.
exemptions
When Phil lists his house on his balance sheet, he should record its:
fair market value
A budget is a financial report that forecasts an individual's current income as a percentage of his or her past earnings.
false
A married couple filing a joint return has Ms. Cindy Cook, a CPA, complete their return. The IRS will hold only Ms. Cook responsible for any errors in the filed return.
false
A tax audit is an examination by enrolled agents to validate the accuracy of a filed tax return.
false
Budgeting and record keeping are the same.
false
Financial planning is necessary only if an individual earns a lot of money.
false
Gross income minus tax-exempt income equals adjusted gross income.
false
If an individual obtains a loan to purchase a car in June, this loan amount will be included as income for the month of June.
false
Income shifting refers to the process of transferring income from the taxpayer to the IRS.
false
Net income (after taxes) should be used when preparing an income and expense statement
false
Qualified dividends are taxed at the highest capital gain rates.
false
Tax credits are dollar for dollar reductions in taxable income.
false
Tax evasion is a legal means to avoid tax liabilities.
false
Tax preparers must be licensed by either the state or the federal government.
false
The alternative minimum tax (AMT) is applicable to taxpayers with moderate levels of income only.
false
A balance sheet describes a person's:
financial position at a given point in time
A simplified version of Form 1040 for individual income tax if you have a taxable income of less than $100,000 from wages only and you do not claim any itemized deductions or any tax credit is:
form 1040 EZ
A declaration of estimated taxes is made in:
form 1040-ES
You made an error when you filed your tax return last year. You can correct this error by filing:
form 1040X
The three groups in the economic environment are :
government, consumers and business
Your take-home pay is what you are left with after subtracting withholdings from your:
gross earings
The total amount of salary you earn before taxes are deducted is your ____________.
gross pay
A key determinant of an individual's quality of life is his or her:
growth potetional -WRONG -motivation -WRONG
Financial planning helps us
have flexibility to handle job loss
Mark is not married and has dependent parents. He pays more than half of the cost of keeping up a home for himself and his parents. His tax filing status is _____.
head of the household
A strong economy leads to:
high employment opportunities.
The federal government gets a majority of its revenue from _____ tax.
income
An income statement includes:
income, expenditure, and cash surplus or deficit -WRONG
The total amount of income tax you owe in one year is your tax:
libilility
You would typically include _____ in your gross income.
life insurance death benefits payment -WRONG
Payments made on your loan obligations should ____________ your net worth.
maintain
Pete and Pam are married with four dependent children. Which of the following filing statuses can Pete and Pam use if they want to legally file one tax return?
married filing jointly
Henry is married to Lillian, and they have two dependent children. Both of them want to file their own tax returns, reporting only his or her own income, deductions, and exemptions. The filing status of Henry and Lillian in their tax returns is:
married filing separately
____________ are difficult to estimate for an upcoming year.
medical expenses
Tax planning is most commonly done to:
minimize taxes
A cash budget helps you:
monitor and control your finances
A budget helps in
monitoring and controlling spending
Which of the following is an illegal method of reducing your current tax liability?
not reporting the taxable income you recieve
Which of the following statements is true about money and relationships?
one of the most important aspects of a marriage is financial compatibility
Which of the following portions of a mortgage loan is recorded as a liability on the balance sheet?
outstanding principle portion only
If you are a professional who is likely to receive income that is not subject to withholding, then you are required to _____.
pay an estimated tax
A savings ratio calculated from an income and expense statement represents the:
percentage of after-tax income saved
The average propensity to consume refers to the :
percentage of income spent for current consumption
A balance sheet provides a statement of one's financial ___________
position
Mandi and Thomas were married and had a child aged 7 in 2014. Mandi died in 2014, leaving Thomas a single parent. The most favorable filing status for Thomas in 2015 will be:
qualifying widower
The last step in the financial planning process is to:
redefine goals and revise plans and strategies as personal circumstances change
The best approach to solve the problem of an annual budget deficit is to:
reduce flexible expenditures on nonessential items
Itemized deductions are listed on:
schedule a of 1040
A _____ would most likely have to pay estimated taxes.
self-employed plumber
The Wilsons' short-term goals might include:
setting up an emergency fund with three months' income
When an individual gives his or her child an income-producing asset, he or she is ____________.
shifting his or her income
Once you define your ____________ financial goals, you can prepare a cash budget for the upcoming year.
shot-term
Molly and Jason were married. Their only dependent was Spot, their black standard poodle. Jason died in 2014. Assuming Molly does not remarry, the only legal filing status for Molly in 2015 will be:
single `
If you do not wish to itemize deductions, the other deduction you can take is the:
standard deduction
The _____ income is gross income less the tax deductions and payments for insurance and retirement savings.
take-home
The Robertsons, a couple with an adjusted gross income of $28,500, decides to contribute the maximum amount possible toward their individual retirement accounts (IRAs) even though Mr. Robertson is covered by a pension plan where he works. He names his wife the beneficiary of the IRA. What is such a tax strategy called?
tax deferral strategy
Tax credits reduce your:
tax liability
Which of the following statements is true about tax credits?
they are deductions from a taxpayer's liability that directly reduce the person's taxes due
Which of the following is true about enrolled agents?
they are federally licensed individuals tax practitioners
Connie is a 20-year-old college student who earned $8,000 and spent it all supporting herself during the year. Her parents may claim her as a tax dependent as long as:
they provide more than half of the amount she needs to support herself during the year
You are solvent if your:
total assets exceeds your total liabilities
A cash budget has value only if one uses it, reviews it regularly, and keeps careful records of income and expenses
true
A cash budget has value only if one uses it, reviews it regularly, and keeps careful records of income and expenses.
true
An individual can maintain his or her personal financial statements using spreadsheet software.
true
An individual is said to have a balanced budget when his or her total income for the year equals or exceeds his or her total expenditures for the year.
true
Estimating expenses using actual expenses from previous years and tracking current expenses make the task of preparing a cash budget easier.
true
Financial plans provide direction to annual budgets.
true
If an individual lists his or her gross salary in the income portion of the budget, the expenditures section will include income taxes and social security taxes.
true
In a budget, "fun money" is for family members to spend as they like without having to account for how it is spent.
true
It is best to prepare an individual's personal financial statements at least once a year, ideally when drawing up his or her budget.
true
It is recommended that an individual maintains a ledger to summarize all of his or her financial transactions.
true
Knowing how to prepare and interpret personal financial statements is a cornerstone of personal financial planning
true
Knowing how to prepare and interpret personal financial statements is a cornerstone of personal financial planning.
true
Russ and Lois got married on December 30. Even though they were single for most part of the year, they can legally file as married filing jointly taxpayers in the year of the wedding.
true
When estimating income for the income and expense statement, you should:
use gross income
What can you do if your budget shows an annual budget deficit?
you can liquidate investments to meet the total budget shortfall for the year
You record _____ on an income and expense statement.
your charitable payments