FIN 101 EXAM 1

Tax credits are dollar-for-dollar reductions in taxable income.

False

Tax preparers must be licensed by either the state of federal government.

False

the down payment is typically the only substantial housing cost that must be paid at the time of the purchase

False

Early termination clauses on an auto lease typically apply to cars that are stolen or totaled in an accident as well as when you just want to return the vehicle before the end of the lease.

True

Ones average tax rate is typically lower than one's marginal tax rate

True

Russ and Lois got married December 30. Since they were single for most of the year, however, they can legally file as married taxpayers in the year of the wedding.

True

the market price of a house is $125,000 and the homebuyer will borrow $100,000. Two points will equal $2,000.

True

You want to borrow $1,000 at an interest rate of 10%. The most expensive method of calculating the dollar cost of the interest on this installment loan will be the

add-on method

The majority of loans made by savings and loan associations are____ loans

mortgage

A_____ would be most likely to Pay estimated taxes...

self- employed plumber

A legal method of reducing your current tax liability

shifting income to your children

If you do not wish to itemize deductions, you can use the...

standard deduction

home equity loans are similar to other installment loans except

the interest paid is generally tax deductible

Connie is a 20 year old college student who earned $8,000 and spent it all on her support during the year. Her parents may claim her as a tax dependent as long as...

they contribute more than half her support for the year

Jackson is a 25 year old college student whose parents contribute to his support. His parents may claim him as a tax dependent in 2011 as long as...

they contribute more than half of his support for the year

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 this $1,000 to their church?

$0

Maria and Ed just sold their home of 20 years so that they could purchase a smaller home. They realized a $400,000 capital gain on the home. How much of this gain will Maria and Ed have to pay taxes on?

$0

Molly and Justin are considering contributing $5,000 to their favorite, tax deductible charity. This contribution will bring their total itemized deductions to $20,000. Assuming they are in the 28% marginal tax bracket, how much will they save in taxes by contributing this $5,000 to charity?

$1,400 5000 x .28

Bob Shockey borrowed $25,000 from his $250,000 cash value life insurance policy to send his daughter to private college. Assuming he pays interest as in accrues, if Bob dies before the debt is repaid his beneficiary will receive

$225,000 $250,000 - 25,000

the annual percentage rate (APR) on a single payment loan for $1,000 at a simple interest rate of 12%

12%

Mandy and Jeff have a net worth of $25,000 and total assets of $140,000. If their revolving credit and unpaid bills total $2200, what are their total liabilities? A. $115,000 B. $140,000 C. $142,200 D. $165,000 E. $167,200

A. $115,000 140,000-25,000= 115,000 Assets - Net Worth

A deposit of $6,000 saved in a CD for 10 years at 3% will be worth (select the closest answer) A. $7340 B. $7,800 C. $8,040 D. $8,678 E. $9,005

C. $8,040 6,000 X .03 = 180 180 X 10 = 1800 6,000 + 1800 = 7800

The stated interest rate on your account is 7.12%, interest paid semi-annually. Your effective rate of interest APY will be. A. lower than 7.12% B. equal to 7.12% C. greater than 7.12% D. depends if the compounding takes place within the same year E. none of these

C. greater than 7.12 %

Michael and Sandy purchased a home for $100,000 five years ago. If it appreciated 6% annually, what is it worth today? A. $100,000 B. $106,000 C. $130,000 D. $133,832 E. $135,603

D. $133,823 100,000 x .06 = 6000 6,000 x 5 = 30,000 100,000 + 30,000 = 130,000

A money factor of 0.00360 on a lease is equivalent to an annual percentage rate of A. 1.80 B. 3.60 C. 4.32 D. 8.64 E. 10.80

D. 8.64 0.00360 x 2400

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? A. 8.8 B. 9.7 C. 10.8 D. 11.4 E. 14.4

E. 14.4 Rule of 72 14 x 5

A long-term capital gain, a investment held for more than 6 months, would be taxed at the same rate as earned income.

False

All taxpayers have an equal probability of having their tax returns audited

False

Income tax refunds are automatically sent to those who qualify for refunds no later than April 15

False

your are preparing your own tax return. The least costly source for answering your question would be...

IRS 800 numbers

A capital gain is the result of...

Selling an asset for more than purchase price

A lender will generally require mortgage insurance if the down payment is less than 20 percent.

True

A significant legal difference between a cooperative and a condominium is that the condominium owner normally holds title to the property

True

Anyone can legally prepare tax returns and charge a fee for that service

True

Capitalized cost on an auto lease Is the same as the amount of the price that is being financed.

True

The greatest fixed cost involved with owning an automobile is usually the monthly loan payments.

True

The money factor on an auto lease is similar to the interest rate on a loan.

True

You can deduct mortgage interest and property taxes on your home to reduce your federal income taxes only if you itemize deductions.

True

You have no employer provided pension plan; your IRA contributions are treated as..

an adjustment to gross income

The tax rate on capital gains for most people is...

dependent on the time the asset was owned

The loss of value in a car over time is called

depreciation

A characteristic of consumer loans is that they

include negotiated contract, are arrived at through a formal process, include a repayment schedule, and are used to purchase big-ticket durable goods and other items

Besides the finance charge, you should also consider ____ when you shop for a consumer loan.

loan maturity, Toal cost of the loan, collateral, repayment penalties