Exam 1

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

Which of the following is a cash inflow?

Income from employment

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

Liquid assets/Current liabilities = $5,000/$2,000 = 2.50.

Increased consumer saving and investing is likely to be accompanied by

Lower interest rates

Amounts given for tuition payments or medical expenses are not subject to gift taxes.

True

Inflation is a rise in the general level of prices and it reduces the buying power of the dollar.

True

Short-term goals are usually achieved within the next year or so.

True

When Marissa completes her taxes, she can include her qualified dependent children, her husband, and herself as exemptions.

True

At the end of the year, employees receive a ____ form that reports annual earnings and the amounts deducted for taxes from their employers.

W-2

Opportunity cost refers to

What you give up by making a choice.

If Jack was in a 25% tax bracket and received a $1,000 tax deduction, by how much would his taxes be reduced?

$250

Ben Collins plans to buy a house for $220,000. If the real estate in his area is expected to increase in value by 2 percent each year, what will its approximate value be seven years from now? Use Exhibit 1-A. (Round your FV factor to 3 decimal places and final answer to the nearest whole dollar.)

$252,780

Given the following information, calculate the net worth: Assets = $8,000 Cash inflows = $6,000 Cash outflows = $4,500 Liabilities = $5,000

$3,000

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

$30 deficit

What would be the yearly earnings for a person with $8,000 in savings at an annual interest rate of 1.5 percent?

$8,000 × 0.015 = $120

David thinks that his salary and tax rate for next year will be higher than for this year. What step should he take minimize taxes over the period this year and next year?

Accelerate receipt of income.

A budget deficit would result when a person's or family's

Actual spending exceeds planned spending.

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

Assets $40,000; liabilities $55,000

Items that you own that have a monetary value are referred to as

Assets.

What would be the average tax rate for a person who paid taxes of $6,435 on a taxable income of $40,780? (Enter your answer as a percent rounded to 2 decimal places.)

Average tax rate=Total taxes / Taxable income =$6,435 / $40,780 =0.1578, or 15.78%

Future value computations are often referred to as

Compounding.

Which of the following ratios shows the relationship between debt and net worth?

Debt ratio

Which of the following will increase the net worth of a household?

Decrease amount owed on credit cards

The first step of the financial planning process is to

Determine your current financial situation.

A tax imposed on the value of a person's property at the time of death is called a(n)

Estate tax.

A tax credit reduces the taxable income on which the tax liability is computed.

False

An example of an excise tax is Social Security.

False

Federal income tax returns must be filed by April 1 of each year.

False

If your tax payments are less than the amount of income tax you owe, you are entitled to a refund.

False

If I can invest a dollar today and earn interest on it, then it should be worth _________ in the future.

More

Take-home pay is also called

Net pay.

The amount you would have left if all assets were sold and all debts were paid in full is called your

Net worth.

Assume the standard deduction for a single person is $6,350. Daniel Simmons arrived at the following tax information:

Taxable income=Adjusted gross income − Exemptions − Itemized deductions =$61,615 − $4,050 − $7,000 =$50,565

Using the following table, calculate the taxes for an individual with taxable income of $20,800.

Taxes = (10% × $8,500) + (15% × {$20,800 − $8,500}) = $850 + $1,845 = $2,695.

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

inflation