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