FIN 4100 Ch 3&4 from book Quiz 1
An investment account that increases from $4,000 to $4,350 in one year is earning about:
8.75 percent
Liabilities are amounts representing:
debts
which of the following provide an accurate explanation of net worth?
- assets minus liabilities -the amount you would have if you sold the assets and paid off the liabilities
which of the following strategies should you employ to help support your tax return in the event of an IRS audit? -avoid common filing errors -retain all your receipts and canceled checks -retain at least 15 years of returns and evidence -keep accurate records
-avoid common filing errors -retain all your receipts and canceled checks -keep accurate records
which of the following are categories of taxes? -taxes on loans -taxes on life insurance proceeds -taxes on purchases -taxes on wealth -taxes on property -taxes on earnings
-taxes on purchases -taxes on wealth -taxes on property -taxes on earnings
The goals of tax planning include:
-understanding how tax laws impact you -making purchases and investments that reduce tax liability -maintaining complete and appropriate tax records
IRS can impose a penalty of _______% of the tax liability for failure to file a tax return
25 percent
Liquid assets refer to:
Cash and other items that are easily converted to cash
the tax rate that is used to calculate the tax on the last (or next) dollar of taxable income is
a marginal tax rate
what does a field audit involve?
an IRS agent visits your home or office and this is the most complex type of audit
The current financial position of an individual or family is best presented with the use of a:
balance sheet
Which type of statement is considered to be personal financial statements
balance sheet and cash flow statement
when inflows are greater than outflows during a given period of time, the result is
cash surplus
after categorizing assets and calculating total assets, what do you do next when preparing the balance sheet?
classify liabilities, total the liabilities, and calculate net worth
the simplest type of IRS audit is the _________ audit
correspondence
what is the simplest type of audit?
correspondence audit
a tax _________ reduces taxable income, thereby reducing the tax liability
deduction
very low-income workers can benefit from
earned income credit
Which of the following payments would be considered a variable expense?
electricity bill
What should be used to keep records that you need on a regular basis and documents with limited value
home file
the two main types of federal taxes on wages and salary are _______ tax and Social Security tax
income
__________ tax is calculated on the value of the property bequeathed by a deceased person to heirs
inheritance
What does tax planning involve?
knowing the current laws, maintaining good records, and making purchase and investment decisions that minimize income taxes
real estate taxes and _________ are tax deductible by the homeowner
mortgage interest
interest income from ________ bonds, which are issued by state and local governments, is not subject to federal income taxes
municipal
Components of income include earned, investment, and _________ income
passive
investment income in the form of dividends, interest, and rent from investments is also called
portfolio income
what type of documents can be thrown away in a wastebasket?
receipts for small non-tax deductible purchases and receipts for expired warranties
what does a personal balance sheet do
reports your income and expenses
Where should you keep a birth certificate, marriage license, and mortgage documents for their house?
safe deposit box or fireproof safe
Which would be included in gross income?
salaries, wages, commissions, dividends, interest, and profits from business
What do opportunity costs refer to?
trade-offs associated with financial decisions
what is discretionary income?
what you have left after you have paid for housing, food, and other necessities
what does an office audit involve?
you must visit the IRS office to answer questions about your return
