FIR module 1

These benefits can include sick leave, vacation, and personal time; life, health, and disability insurance; tuition reimbursement programs; pension, profit-sharing, and___________ retirement plans; and flexible spending accounts (FSAs) for________care and health care expenses.

401 K child

To achieve the best results, it is critical that you begin your retirement planning long before your retirement. Most Americans, however, don't start thinking about retirement until well into their _________________________. The cost of this postponed planning is a _________________________ of retirement income.

40s and 50s substantially lower

Think about the characteristics of the expansion and contraction periods in a business cycle. How might the characteristics of these two phases affect your efforts to manage your financial resources? Check all that apply. During a period of economic contraction, finding a job can generally be easier due to the decreasing unemployment rate. During the early stage of an economic expansion, it is generally easier to buy expensive assets, such as a car or home, on credit due to lower product prices and interest rates.

During the early stage of an economic expansion, it is generally easier to buy expensive assets, such as a car or home, on credit due to lower product prices and interest rates.

True or False: When estimating expenses, developing an amount that one can live within is the best approach.

False. The goal of a budget is to estimate the cash receipts and cash expenses expected to occur in the coming year. Setting an amount based on what you think you might spend is like shooting darts at a target of likely expenses. Using actual expenses from previous years provides the most realistic picture of annual expenditures. In addition, any supporting data that would clarify an increase or decrease to an expense amount helps ensure that the estimates are as realistic as possible for the upcoming year.

__________________ policy is used to control the size of the money supply to stimulate or moderate business activity levels in the economy. In contrast, _____________ policy uses government spending and taxation to do the same.

Monetary Fiscal

Correct Choice Incorrect Choice Nathan is a sales rep who, based on last year, averaged $2,200 of monthly commission before taxes. He should include this in his budget.Stella was just notified that her contribution to the company's health plan is increasing by 3.5%. It's a company expense, so Stella doesn't include it in her budget.As Sam was reconciling his checkbook, he realized that he incurred $13.25 last month for ATM withdrawals. He looked back at the last six months and realized that he averaged the same amount each month. This is an unexpected expense and shouldn't be listed in his budget.Every year the Wus buy a big item or take a trip with a single annual bonus Barb receives. They included this in their budget.

Nathan should estimate income for the upcoming year, including all expected commissions. But, he should use take-home, or after-tax, income when preparing a budget. In the case of Stella, the additional contribution amount will be included in her budget by the fact that she will begin by listing income after tax and other items withheld by the company, such as health insurance plan contributions. It is difficult to prepare a schedule of expenses. If you have $50 in your pocket, can you retrace where every dollar was spent? But, the better you track your expenses, the more beneficial your budget will be. In Sam's case, if he incurred consistent ATM fees, then estimating an annual amount to place in the budget is a good practice. Lastly, the Wus are correct by including this in their budget. Vacations and fun money (money not identified to buy or pay for a specific item, service, or obligation) should be listed in a budget along with the estimated bonus.

Federal, state, and local government organizations fulfill several roles within the economy. Which of the following are roles provided by government organizations? Check all that apply. Regulating economic activity Employing consumers Providing essential public services Points: 1 / 1 Which of the following is a principal tool used by government organizations to constrain the activities of businesses and consumers? Initiating negative social media campaigns Enacting fiscal policy Points: 1 / 1 In overseeing the economy, the goals of the federal government are economic _________________ and a high __________________ level.

Regulating economic activity Employing consumers Providing essential public services nitiating negative social media campaigns Enacting fiscal policy stability employment

Which of the following are important steps in financial record keeping? Check all that apply. Safely disposing of unneeded documents Ensuring that your family and/or executor can locate your financial documents Reorganizing your financial documents every three months at a minimum Keeping documents that are no longer needed, but have sensitive information on them

Safely disposing of unneeded documents Ensuring that your family and/or executor can locate your financial documents

After receiving a raise at work, Claire is trying to decide whether to invest the new funds into a savings account or to purchase additional shares of stock in Apple Inc. This is an example of

Savings and investment planning

Which of the following are tasks included in the process of employee benefit planning?

Select the most appropriate benefits and plans. Ensure the availability of a minimum necessary level of protection and coverage should you or your spouse lose your employer-provided benefits.

taxable income

Taxable income is defined as the amount of income subject to taxes. It includes all income subject to tax and subtracting adjustments, deductions, and exemptions.

Excemption

Taxpayers get an exemption for each person they support. They can claim an exemption for themselves, a spouse, and dependents. An exemption can be taken only once. For example, a college-bound child who qualifies as an exemption for his or her parents cannot also claim an exemption on a tax return he or she may be required to file.

Capital Gains Tax Categories

The amount of tax to be paid on capital gains (for example, assets such as stocks are sold for more than their purchase price) is determined by the holding period of the asset. In 2014, assets held less than 12 months are taxed as ordinary income. For assets held more than 12 months , the capital gains rate ranges from 15 to 20%.

itemized deductions

Itemized deductions are personal expenses that are subtracted from AGI. If personal expenses exceed the standard deduction amount, the taxpayer can choose to itemize deductions rather than take the standard deduction. Some itemized deductions are limited based on a taxpayer's AGI.

Capital Gains

A capital gain occurs whenever an asset (such as a stock, a bond, or real estate holding) is sold for more than its original price. Additionally, capital gains are taxed at different rates, depending on the holding period of the asset.

True or False: In situations where an annual budget deficit exists, cutting expenses from the budget is optimal. True False

True

True or False: To finalize the budget, compare projected income to projected expenses. When income equals or exceeds total expenses, it is considered a balanced budget.

True

True or False: To remedy a short-term budget surplus, shift additional income to a month where a deficit exists. To remedy a short-term budget deficit, shift expenses to months where a surplus exists.

True

True or False: When estimating income, include amounts that you can control, like bonuses and rental income.

True

A contraction period is characterized by the following attributes: businesses that are operating with____________ levels of production activity, increasing unemployment, _______________ retail sales, increasing or high prices and interest rates, a _________________ stock market, and expectations of lower business profits. Points: 1 / 1 Expansion periods tend to end with a _________ , whereas contraction periods end with a _____________ .

lower low declining peak trough

Most people recognize that, as a group, consumers are the pivotal participants in the economy. The_______________decisions made by consumers determine which goods and services will be produced by businesses, just as their investment and saving decisions will strongly influence conditions in the______________markets. Points: 1 / 1 Another indication of the importance of consumers is the effect their collective spending has on the economic activity level observed in the economy._____________in the level of consumer spending is usually credited with causing_______________ and all benefits or costs that go with it.

purchasing financial markets An increase economic growth

Insurance planning, on the other hand, provides a way of _____________ your financial risks and __________________ your income and assets. Improper insurance planning can be expensive and can lead to unprotected possessions.

reducing protecting

Financial assets are __________________________ and are held either to consume and use or to generate a return or income as an investment. An example of an intangible asset is ______________________ .

return-earning assets stocks or bonds

Utility

satisfaction, usefulness, or value one obtains from consuming goods and services

savings ratio formula

cash surplus/ Net income after taxes

Tax planning involves evaluating your current and projected earnings and developing strategies that can legally__________and/or____________ your tax liability.

defer reduce

The term business cycle, or economic cycle

describes the pattern of expanding and contracting business activity that an economy exhibits over a period of time.

The_________________ of liabilities is that, by law, the money_____________________

disadvantage, repaid

financial planner

a specialist who is trained to offer specific financial help and advice

Liability acquisition planning

addresses how you are going to pay for your asset purchases using liabilities, orborrowed money.

In general, it is best to begin the six planning activities—asset acquisition, liability and insurance, savings and investment, tax, employee benefit, and retirement and estate—planning as soon as possible. However, at what age is it generally recommended that you begin your tax planning activities?

early 30s

In this context, increasing production and consumption are generally referred to as _____________________, and declining production and consumption are usually called ______________________.

economic growth economic contraction

As you gather asset information, it is important to identify and record all assets. Regardless of asset category, all assets listed on the balance sheet should be recorded at _________________.

fair market value

Tax-free investments are so called because the interest or other income paid to their owners is _______________ federal, and, perhaps, state taxes. Owners of tax-deferred investments, on the other hand, are allowed to ___________________ paying taxes on any returns generated by the investment.

free of postpone

Businesses sell to consumers and government organizations, providing them with __________________ in return for _____________________ . To accomplish this, businesses transform the __________ inputs to the production process provided by consumers (namely land, labor, equipment, managerial talent, and a willingness to take risks) into finished products and services. In return, consumers are paid __________ in the form of rent, wages, interest, and profits. Points: 1 / 1 Businesses, or _____________ are probably the most constrained participant in the economy, because in the long term their choice of goods and services produced is dictated by the purchasing preferences of consumers and government organizations, or ______________ . In addition, businesses are also constrained by the laws and regulations imposed by federal, state, and local government organizations.

goods and services monetary payments inputs money sellers buyers

Real property

immovable property, such as land, and anything fixed to it, such as a house. In general, real property has a relatively long life and high cost. It may appreciate (or increase) in value (for example, the land your home sits on or the fence around your property)

The purpose of most long-term savings activity is to accumulate funds for ________________________.

important and expensive expenditures and retirement .

Recall that the balance sheet equation states that net worth equals total assets minus total liabilities. Identifying assets and recording them is one of the first steps in balance sheet preparation. In some instances, assets are acquired with cash. In others, often large purchases, they are acquired by securing debt (for example, a bank loan or a department store charge). Regardless of how an asset is acquired, items purchased through financing have associated debt which is owed by you and must be repaid in the future. These items, or _____________ , are generally classified according to maturity.

liabilities

Current Liabilities

liabilities due within a short time, usually within a year Property taxes, current yearWasher/dryer loan due this year

liquid assets

low-risk financial assets held in the form of cash or instruments that can readily be converted to cash with little or no loss in value (for example, your cash or a mutual fund maturing within the year)

A budget is a _____________ report that helps achieve financial goals. A cash budget is a valuable money management tool that helps you: Points: 1 / 1 •Maintain the necessary information to monitor and control your finances•Decide how to allocate your income to reach your financial goals•Implement a system of disciplined spending, as opposed to just existing from paycheck to paycheck•Reduce needless spending, so you can increase the funds allocated to savings and investments•Achieve your long-term financial goals

short term

Purchasing power

value of money by describing amount of goods and services each dollar buys at given time. Deflation tends to increase value

Estate planning, the second half of retirement planning, involves the method by which your ________________ will be passed on to your heirs, often by way of wills, trusts, and gifts.

wealth

•Loans: Regardless of the type of loan, only the _____________________ is shown on the balance sheet .•The ____________ loan balance is not what is currently owed but whatwas originally borrowed . •Loan amount: The portion of a loan listed as a liability on the balance sheet is only the ___________________ .

latest outstanding loan balance initial loan's principal

business cycle

, or economic cycle, is the irregularly occurring wavelike pattern of economic activity, generally depicted as an undulating wave of expansions, peaks, contractions, and troughs.

The business cycle consists of four phases, which are often depicted as a series of waves. These phases include the following:

1.The expansion phase exhibits increasing amounts of business production and consumer purchases. However, because expansions can't continue forever, the economy reaches a peak level of activity and the next phase begins.2.The peak phase involves the economy transitioning from the expansion phase to the contraction phase. Because economies can't remain at their peak indefinitely, they eventually slow down and enter the next phase.3.The contraction phase, characterized by declining production and consumption, can worsen into a recession. However, when the contraction reaches its bottom, the economy enters the next phase of the business cycle.4.The trough is the bottom of the contraction period and is another transition phase. The trough is the phase that occurs between the contraction and the expansion phases. Once the economy begins to improve with expanding levels of production and consumption, the trough ends and the expansion begins.

Which of the following statements accurately describe the phases of a business cycle? Check all that apply. A period of expansion is when an economy exhibits increasing levels of production and spending. A peak level of business activity occurs at the end of the expansion phase and the beginning of the contraction phase. A period of expansion is when an economy exhibits decreasing levels of production and spending. A contraction phase is when an economy exhibits increasing quantities of production and spending.

A period of expansion is when an economy exhibits increasing levels of production and spending. A peak level of business activity occurs at the end of the expansion phase and the beginning of the contraction phase.

standard deduction

A standard deduction is a blanket deduction that includes various deductible expenses that would normally be incurred by a taxpayer. For taxpayers who have little or no personal expenses (for example, property taxes or professional organization dues), the standard deduction is taken to reduce AGI.

Active Income

Active income is income earned on the job, such as wages and salaries, bonuses and tips, and other forms of noninvestment income (such as pension income and alimony received).

Adjustments

Adjustments are taken against gross income and include certain employee, personal retirement, insurance, and support expenses. They are usually non-business in nature. Some examples include educator expenses, higher education tuition costs, IRA contributions, self-employment taxes paid, self-employment health insurance paid, penalty on early withdrawal of savings, alimony paid, and moving expenses.

Adjusted Gross Income (AGI)

After subtracting the total of all allowable adjustments, the result is adjusted gross income or AGI. Many itemized deductions are based on a percentage of AGI.

Some taxpayers must make four quarterly installments. These are due Individual tax filers must file their annual federal return no later than If a taxpayer amends a return, they submit revised calculations for determining tax liability. They file this return In some cases, up to six years from when a return was filed, taxpayers can be notified that they are subject to

April 15, June 15, September 15, and January 15 . April 15 . within three years of filing the original return. . a tax audit

Credit card obligations, called open account credit obligations

Credit card obligations, called open account credit obligations, are classified as current or short-term liabilities, because every month the entire balance is due. But the issuing company allows you to make only a partial payment; then it charges you interest on the outstanding balance.

Steps to taxible income

Continuing from AGI, the taxpayer determines the allowable personal expenses incurred during the tax year. Based on the amount determined, the taxpayer can take the standard deduction or itemize deductions. Once deductions are taken against AGI, taxpayer exemptions are claimed to further reduce income. AGI, less deductions and exemptions, equals taxable income.

_______________________ involves selecting, coordinating, and managing employer-provided compensation thatdoes not take the form of cash payments, such as wages, salaries, and commissions.

Employee benefit planning

Deductions

From AGI, deductions fall into two types: standard or itemized. When a tax return is prepared, the taxpayer can choose the higher of either deduction, which is subtracted from AGI.

Steps to taxable income and tax liability owed

Gross income Less adjustments (deductions and retirement contribution) equals AGI less larger of itemized deductions less total personal excemptions equals taxible income Calc tax using tax tables less tax credits plus other taxes equals total tax liability

Gross Income

Gross income includes any and all income subject to federal taxes: wages, salaries, bonuses, commissions, interest, dividends, alimony received, business and farm income, gains on the sale of assets, pension income, annuity income, rental income, partnership income, prizes, lottery winnings, and winnings from gambling.

Sale of a home

Homeowners receive special tax treatment on the sale of a principal residence. Single taxpayers can exclude from income the first $250,000 of gain ($500,000 for married taxpayers). To qualify, the taxpayer must own and occupy the residence as a principal residence for at least two of the five years prior to the sale.

If the federal government wants to decrease production and purchasing activity levels in the economy, which of the following policy tools could it use? Check all that apply. Increase the money supply. Increase tax rates. Decrease government spending. Increase government spending.

Increase tax rates decrease govt spending

Tax people

National and local tax services: These include national services such as H&R Block and independent local firms. These services are best for taxpayers with relatively common types of income and expenditures. Certified public accountants (CPAs): These individuals have taken an exam administered by the American Institute for Certified Public Accountants. A subset focuses on taxes and specializes in preparing returns and advising taxpayers on planning. Enrolled agents (EAs): This category comprises federally licensed individual tax practitioners who have passed a difficult, two-day, IRS-administered exam. They are fully qualified to handle tax preparation at various levels of complexity. Tax attorneys: These individuals are bar-certified lawyers who specialize in tax planning and related legal issues.

long-term liabilities

Obligations not due to be paid within one year or the operating cycle, whichever is longer. Outstanding principal on your primary residence not due in the current yearA two-year loan from parentsYour $25,000 Visa bill

Real Estate or limited liability partnership expenses

Passive income cannot be combined with portfolio or active income, and these expenses can be used only to offset the passive income to which they relate.

Passive Income

Passive income is a special category of income that includes earnings derived from real estate, limited partnerships, and other forms of tax shelters.

Future Value

Points: 1 / 1 Close Explanation Explanation: When a single current value is known and you want to know what it will be worth earning a set rate of interest over a set period of time, you can calculate what is called the future value. The formula is: Future Value=Amount Invested x Future Value Factor The future value factor combines the interest rate and number of periods. The factor can be found at the intersection of the 7% column and the Period 4 row. When you insert the factor, the calculation is as shown: Future Value=($5,000) x (1.311)=$6,555.00 Alternatively, you can use your financial calculator to solve for future value: Input47%-5,0000KeystrokeNI/YRPVPMTFVOutput6,553.98

Investment expenses

Portfolio income cannot be combined with passive or active income, and these expenses can be used only to offset the portfolio income to which they relate.

Portfolio Income

Portfolio income includes interest, dividends, and capital gains (on the sale of investments) generated from investment holdings. This category also includes income from savings accounts, stocks, bonds, mutual funds, options, and futures.

A person whose spouse died within two years of the tax year and who supports a dependent child:Qualifying widow or widower with dependent children A person who is unmarried or legally separated from a spouse by either a separation or final divorce decree:Single taxpayer A person who is unmarried or considered unmarried and pays more than half of the cost of keeping up a home for himself/herself and an eligible dependent child or relative: Head of household A couple in which each spouse files his or her own return: Married filing separately Spouses who combine their income and allowable deductions: Married filing jointly

Qualifying widow with dependent children single taxpayer head of household married filing separately married filing jointly

itemized deductions examples

There are many examples of itemized deductions. Often taxpayers overlook these expenses when preparing their tax returns. The total amount plays a role in determining whether to take the standard deduction or to itemize deductions. Expenses include (but are not limited to) professional organization dues, cost of a safe deposit box, points paid on a mortgage or refinancing, financial management fees, personal property taxes on vehicles, unreimbursed job-related expenses, and certain types of clean-fuel or hybrid cars.

tax liability

To determine the amount of tax owed, taxable income is based on the tax tables or tax rate schedules.

Steps to AGI

When preparing a tax return, a taxpayer begins with gross income. Defined as all income subject to income tax, gross income is then reduced by adjustments. Adjustments are certain expenses and retirement plan contributions that are subtracted from gross income to arrive at AGI.

One of the first savings accumulations recommended by financial advisors is __________________ , which should contain _________________ months' worth of income.

an emergency fund three to six

Elijah graduated from college this past May and is considering the purchase of a new car. He's considering either a used VW Jetta or a new Toyota Corolla. This is an example of _________________.

asset aquition planning

Investments

assets acquired to earn a return rather than to provide a service. These assets are mostly intangible financial assets (such as stocks, bonds, and mutual funds), typically acquired to achieve long-term personal financial goals. Rental property provides a service (rental income). Business ownership is also considered an investment (for example, some stock or a pension fund).

Employee Benefits

compensation other than wages, salaries, and incentive programs

In general, the cost and value of your tangible, personal, and real assets tend to ______________________ with your age, income, and wealth, all other things remaining constant. The value of your financial and liquid assets, on the other hand, tends to be a function of economic conditions and your investment returns.

increase

In general, your borrowing needs tend to ______________ as you acquire additional and/or more expensive assets.

increase

In general, it is desirable to _________ the return earned on your invested funds (assuming you are not significantly increasing risk), to earn __________________ interest on your funds, and to ______________ the fees associated with the accounts.

increase compoud reduce

Personal Property

moveable property, such as automobiles, recreational equipment, household furnishings, or collectibles. Personal property is a tangible asset that is used in everyday life (for example, your Lexus automobile or your diamond earrings).

•___________ : The fair market value of assets owned less liabilities owed •____________: The amount left after selling assets and paying off all liabilities •_________________: Net worth is less than zero

net worth equity insolvency

A tax structure in which additional taxable income is taxed at a higher rate is referred to as a ____________________ The tax paid on the next dollar of taxable income is referred to as the ________________________ The overall rate at which income is taxed, determined by dividing the tax liability by the taxable income, is referred to as the _________________.

progressive tax structure marginal tax rate average tax rate

Asset acquition planning

one of the earliest financial activities you undertake in life. It involves the purchase ofthings we own , including tangible and financial assets, liquid assets, investments, and personal and real property.

standard of living

the faucet of an individual's quality of life refers to his level of wealth, physical and pschological comfort, material goods, necessities

average propensity to consume

the percentage of each dollar of income, on average, that a person spends for current needs rather than savings

tax evasion

the use of illegal actions to reduce one's taxes

tax avoidance

the use of legitimate methods to reduce one's taxes

The ____________________ is a financial concept that focuses on the idea that a dollar today will be worth more in the future. There are two key time value concepts: present value and future value. Looking at future value, the concept is that an amount in hand today will grow if it earns a specific rate of interest over a given period of time. This growth in value occurs not just because of the rate of interest being earned each year but also because that earned interest compounds. In other words, the interest earned in year one is added to the principal in year two, and interest is earned on this new principal balance; this continues through the set period of time.

time value of money

Individuals in work situations where taxes are not withheld are required If taxpayers have been granted an automatic extension, their annual federal tax return is due no later than With a filing extension in hand, a taxpayer must pay any taxes owed If a taxpayer wants to amend a return previously filed, they can complete

to make estimated tax payments no later than Oct 15 when the extension request is filed Form1040X

Net worth

total assets minus total liabilities

Liquidity Ratio equation

total liquid assets / total current debts

debt service ratio equation

total monthly loan pmt / monthly gross (before taxes) income

Solvency Ratio Equation

total net worth/total assets

As it is currently written, the U.S. tax code recognizes several types of taxable income, including:

•Active, orordinary , income •Passive income •Portfolio, orinvestment , income •Tax-deferred and/or tax-free income

Keeping good financial records will save you time and make you money. If your records are organized, you'll have an easier time:

•Compiling a budget•Pulling together an updated financial statement•Accessing your records in an emergency•Preparing your taxes•Preparing for an IRS audit•Defending a credit report

Financial plans, budgets, personal financial statements, balance sheet, income and expense statement

•Financial plans are the road maps that will show you the way. Collectively, they are the umbrella under which personal financial statements fall. •Budgets are forward-looking documents that allow you to monitor and control your spending. They are based on expected income and expenses. •Personal financial statements are current documents, or planning tools, that are up-to-date evaluations of your financial well-being; in other words, they show actual financial results. You use these documents to help identify potential problems and to make informed financial decisions. •The balance sheet is a document that defines your financial position. It identifies the assets you own less the debts you owe, ending in your net worth. The balance sheet is dated as of a particular point in time, with the assets and liabilities valued as of that date. •The income and expense statement is a document that measures your financial performance over time. An income and expense statement is dated as of a particular date, but it covers a period of time (for example, 12 months). It includes all income earned during that period of time and all expenses incurred and paid during that time.

Record Keeping

•One good record-keeping tip is to prepare your financial statements at least once a year . •Ideally, keeping a ledger will help you summarize all your transactions. •A ledger has sections where data is recorded for what you own or your assets ; what you owe or your liabilities ; your cash inflows or your income ; and your cash outflows or your expenses .