590 exam 1
Tom sold mutual fund shares, which he had owned for 3 years, so that he could use the proceeds to return to college. Tom is in the 12% ordinary tax bracket, and his capital gain from the sale was $12,000. How much tax does Tom owe on the gain? $12,000 $3,080 $1,440 $1,200 $0
$0
Mr. and Mrs. Davenport, ages 40 and 38, respectively, have three children, ages 3, 6, and 13. For 2019, they have adjusted gross income (AGI) of $65,000 and unreimbursed medical expenses of $6,750. The Davenports' claim for itemized deductions for medical expenses is: $0. $1,875. $3,500. $2,750. $4,500.
$1,875.
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 the capital gain is computed on: $400,000. $300,000. $250,000. $150,000. $0.
$150,000.
Sonny and Cher have a net worth of $35,000 and total assets of $200,000. If they have credit card purchases of $1,200 and unpaid bills of $1,000, what will their long-term liabilities be? $115,000 $140,000 $142,200 $162,800 $165,000
$162,800
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.) 8 9 10 11 12
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 the number of years to the nearest whole number.) 8 9 10 11 14
14
Ben is 67 years old and single. He is also legally blind. When filing his 2018 income taxes, he opts to take the standard deduction rather than itemizing personal deductions. How much is Ben's standard deduction? $0 $12,000 $13,600 $15,200 $24,000
15,200
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. $575. $650. $500. $75
150
Jamil and Vicki have one child, age 3. How much will a tax credit reduce their tax liability? $500 $1,000 $2,000 $2,500 $3,000
2,000
If a lump-sum deposit of $8,000 is left in a bank for 12 years at 9%, compounded annually, what will the ending balance be? (Round the answer to the nearest dollar.) $11,600 $16,640 $22,501 $52,938 $96,000
22,501
The highest marginal tax rate is currently: 32%. 35%. 37%. 41%. 45%
37
Which of the following age groups tends to have the highest income? 18-24 25-34 35-44 45-64 65 and older
45-64
Alice lost her electronic funds transfer system (EFTS) card and reported it missing the next day. She found that $800 had been withdrawn from her savings account. Alice's loss is equal to: $0. $25. $50. $800. $800 plus a fee.
50
Brent had $450 in his checking account when his electronic funds transfer system (EFTS) card and personal identification number (PIN) were stolen almost a week ago. Because he has been ill, he didn't report the theft until today, 5 days after the theft occurred. The delay in notifying the bank means that he could lose: $0. $25. $50. $500 all the money in his account.
500
A taxpayer can file for an automatic extension of _____ months. 2 4 6 9 12
6
Melinda sold mutual fund shares, which she had owned for 5 years, so that she could use the proceeds to travel with her sister. Melinda is in the 32% ordinary tax bracket, and her capital gain from the sale was $40,000. Melinda's tax liability on the gain is: $10,500. $8,400. $6,000. $4,500. $1,500.
6,000
Molly and Justin are considering contributing to a qualified tax-exempt organization. Their adjusted gross income (AGI) is $100,000. What is the maximum amount they can claim as an itemized deduction under the Tax Cuts and Jobs Act of 2017? $0 $600 $1,200 $6,000 $60,000
60,000
You had $800 in your checking account when your electronic funds transfer system (EFTS) card and personal identification number (PIN) were stolen. You didn't report the theft for 2 months after your periodic statement was mailed. How much could you lose? $0 $50 $400 $800 $800 plus a fee
800
If your total assets equal $87,000 and your total liabilities equal $10,000, your solvency ratio is: 11.5%. 13.0%. 77.0%. 87.0%. 88.5%
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 the rate of interest to the nearest whole number.) 6% 7% 8% 9% 10%
9%
Which of the following is a typical effect of an economic recession? An increase in the standard of living A decrease in unemployment An increase in the expenditure on luxury goods A decrease in the value of retirement accounts An increase in the value of insurance purchased
A decrease in the value of retirement accounts
_____ would be considered a part of your taxable income. Your individual retirement account (IRA) contributions A gift from your aunt Your child-support payments A gain from the sale of your assets Your tuition scholarship
A gain from the sale of your assets
Which of the following is an example of a liquid asset? A mutual fund Stocks An automobile Land A savings account
A savings account
Joe Gustafson is a very busy person who prefers to use one account to handle all his financial services needs like checking, investing, and borrowing. Which of the following types of accounts is most suitable for Joe? A checking account A money market deposit account (MMDA) A brokerage account An asset management account (AMA) A savings account
AMA
Which of the following statements regarding an individual's income and expense statement is true? An income and expense statement describes your financial position at a given point in time. An income and expense statement looks forward in time to control spending. An income and expense statement identifies your financial goals. An income and expense statement measures your financial performance over a specified period of time. An income and expense statement can be used to predict inflation and interest rates.
An income and expense statement measures your financial performance over a specified period of time.
Which of the following statements about Andy is true if the inflation rate is increasing every year by 1 percent and there is no growth in his salary? Andy can afford to buy more luxury items as prices go down. Andy's purchasing power will decrease. Andy's employment opportunities will increase. The lack of growth in Andy's salary will increase the average inflation rate. Andy's cost of borrowing will be reduced.
Andy's purchasing power will decrease.
Financial planning goals can be classified as short-term, intermediate-term, or long-term. Which of the following goals would be considered long-term? Begin college fund for children. Fund an emergency fund. Accumulate $30,000 net worth. Purchase a second car. Repay college loans.
Begin college fund for children.
Which of the following statements regarding budgets is true? Budgets are detailed forward-looking financial reports based on expected income and expenses. Budgets describe a person's financial position at a given point in time. Budgets measure a person's financial performance at a given point in time. Budgets describe a person's financial goals over time. Budgets are historical documents that tell an individual how he or she has performed in the past.
Budgets are detailed forward-looking financial reports based on expected income and expenses.
Which of the following practices helps an individual survive in a financial crisis? Spending more than his or her earnings to maintain a good lifestyle Investing small amounts regularly to achieve long-term financial goals Establishing an emergency fund with 6 months' worth of income Developing financial plans only after reaching the highest tax brackets Hiring a noncertified financial planner
Establishing an emergency fund with 6 months' worth of income
Funds in commercial banks are protected by the: National Credit Union Administration (NCUA). Federal Depositors Assurance Corporation (FDAC). Federal Deposit Insurance Corporation (FDIC). National Credit Union Share Insurance Fund (NCUSIF). Savings Association Insurance Fund (SAIF).
FDIC
Which of the following statements regarding the tax levied under the Federal Insurance Contributions Act (FICA) is true? It is also known more commonly as property tax. It is paid equally by employer and employee. It is not applicable to self-employed persons. It applies only to the first $100,000 of an employee's earnings. It is used to provide insurance against theft.
It is paid equally by employer and employee.
_____ is an example of personal property. Jewelry A mutual fund A corporate bond A charge account A certificate of deposit
Jewelry
Which of the following statements regarding liabilities is true? Liabilities are generally classified according to maturity. Most loans fall into the category of short-term liabilities. Future interest payments are accounted for separately as long-term liabilities on the balance sheet. All liabilities should be recorded on the balance sheet at their current fair market value. Whether or not a liability must be repaid in the future depends on its source
Liabilities are generally classified according to maturity.
Liquid assets include your: money market deposit account (MMDA). 10-year Treasury bond. 3-year certificate of deposit (CD) purchased in the current financial year. Series EE U.S. savings bond. I savings bonds.
MMDA
Which of the following are protected by the Federal Deposit Insurance Corporation (FDIC)? Money market deposit accounts (MMDAs) Money market mutual funds (MMMFs) Asset management accounts (AMAs) Stocks and bonds Life insurance policies
MMDAs
Which of the following statements regarding the cost of a checking account is true? Most banks and other depository institutions allow unlimited free check-writing privileges. Most banks charge a fee when a checking account balance drops below a required minimum. Most banks use the daily balance in an account to determine whether to levy a service charge. The average charge of a returned check is between $35 and $50. Most banks do not charge for using the automated teller machine (ATM) of another bank that is not a member of the same network.
Most banks charge a fee when a checking account balance drops below a required minimum.
Which of the following is an illegal method of reducing your current tax liability? Not reporting the taxable income you receive Investing in a tax-deferred annuity Shifting income to your children Investing money in municipal bonds Putting money in a Roth individual retirement account (IRA)
Not reporting the taxable income you receive
Which of the following statements about money and relationships is true? It is highly possible to change a partner's financial style. One of the most important aspects of marriage is financial compatibility. Money does not cause emotional issues in any relationship. The best way to resolve a money dispute is to avoid such a discussion. Financial planning does not help in resolving conflicts related to money
One of the most important aspects of marriage is financial compatibility.
Which of the following portions of a mortgage loan is recorded as a liability on the balance sheet? Interest only Sum of the interest paid and the outstanding balance Sum of the interest due and the outstanding balance Outstanding principal portion only Principal portion and interest paid
Outstanding principal portion only
The interest earned on an individual's _____ is free of state and local income taxes. Series EE bonds certificates of deposit (CDs) term deposits money market deposit accounts (MMDAs) time deposits
Series EE bonds
Which of the following is a reason for a decrease in the average propensity to consume with an increase in income? The amount of savings decreases, and the consumption of necessities increases. The expenditure on luxury goods increases, and the amount of savings decreases. The expenditure on luxury goods represents only a small portion of income. The amount of savings represents only a small portion of income. The cost of necessities represents only a small portion of income.
The cost of necessities represents only a small portion of income.
Which of the following statements about setting long-term goals is true? The goals should be very ambitious. The goals should be realistic. The goals should be attained in 6 months to a year. The goals should be easy to meet. The goals should be set and remain unchanged.
The goals should be realistic.
Which of the following statements about investments is true? As income increases, the need for investment planning decreases. Keeping money idle is a form of investment. Higher returns on investment will lead to the accumulation of less wealth. Investment is measured by the amount of debt incurred. The length of time for which money is invested is important.
The length of time for which money is invested is important.
Which of the following statements regarding tax credits is true? They are deductions that depend on the taxpayer's filing status, age, and vision and that can be claimed by a taxpayer whose total itemized deductions are small. They are deductions from adjusted gross income (AGI) based on the number of persons supported by the taxpayer's income. They represent the income remaining after subtracting all allowable adjustments to (gross) income. They are personal expenditures that can be deducted from adjusted gross income (AGI) when determining taxable income. They are deductions from a taxpayer's tax liability that directly reduce his or her taxes due.
They are deductions from a taxpayer's tax liability that directly reduce his or her taxes due.
In which of the following ways is an income and expense statement and a cash budget alike? They are prepared on a cash basis. They compare projected income to projected expenses. They show an individual's net worth. They describe an individual's financial position at a given point in time. They are used as the basis for computing solvency and liquidity ratios.
They are prepared on a cash basis.
Which of the following statements regarding safe-deposit boxes offered by banks is true? They can be opened only by the banker. They may increase a homeowner's insurance premiums. They are owned by the customers of the bank. They can be used to manage mutual funds. They can be used as a storage place for important documents.
They can be used as a storage place for important documents.
Which of the following statements regarding low interest rates is true? They encourage investors to search for investments like Treasury bills. They encourage the substitution of equity by debt. They encourage investors to search for stocks paying high dividends. They encourage individuals to save more. They encourage paying down the national debt.
They encourage investors to search for stocks paying high dividends.
Ben and Jack both earned $60,000 this year. Ben (age 30) is married with two children, and Jack (age 68) is single with no dependents. Which of the following statements regarding the amount of Social Security taxes they will have to pay is true? They will pay the same amount of Social Security taxes. Ben will pay less Social Security taxes because he is married. Ben will pay less Social Security taxes because he has children. Jack will pay less Social Security taxes because he is single. Jack will pay less Social Security taxes because he is over the age of 65.
They will pay the same amount of Social Security taxes.
Which of the following are the three stages of the financial planning life cycle? Wealth accumulation, wealth preservation, and wealth transfer Wealth accumulation, wealth preservation, and wealth depletion Wealth accumulation, wealth conservation, and wealth transfer Wealth acquisition, wealth transfer, and wealth depletion Wealth accumulation, wealth conservation, and wealth maturation
Wealth accumulation, wealth preservation, and wealth transfer
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. On their current balance sheet, their home will be reflected as: a $200,000 asset for the replacement value and a $55,000 liability for the outstanding mortgage. a $200,000 asset for the replacement value and a $90,000 liability for the original mortgage. a $175,000 asset for the market value and a $55,000 liability for the outstanding mortgage. a $175,000 asset for the market value and a $90,000 liability for the original mortgage. a $100,000 asset for the purchase price and a $55,000 liability for the outstanding mortgage.
a $175,000 asset for the market value and a $55,000 liability for the outstanding mortgage.
A decrease in the gross domestic product (GDP) would indicate that the economy is experiencing: an expansion. a contraction. deflation. stagflation. a growth spurt
a contraction.
When doing an account reconciliation, interest earned on your account should be: deducted from your checkbook ledger balance. added to your checkbook ledger balance. ignored because the bank has already recorded it. listed as outstanding. treated like a loan.
added to your checkbook balance
When your liabilities exceed your assets, you: are bankrupt. have growing equity. have a positive net worth. are insolvent. have less real assets than investments
are insolvent.
If your _____, your net worth on the balance sheet will increase from one period to the next. liabilities increase and assets remain constant liabilities increase and assets decrease assets increase and liabilities remain constant income and liabilities decrease liabilities and expenses increase
assets increase and liabilities remain constant
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 as ordinary income. the entire gain be taxable at a rate of 15%. be taxable at the appropriate short-term capital gains rate. be taxable excluding the first $250,000 of the gain. be taxable excluding the first $500,000 of the gain.
be taxable excluding the first $250,000 of the gain.
The low interest rates after the financial crisis of 2007-2008 have been beneficial to: borrowers. retirees. shareholders. investors. savers.
borrowers
Compared to other depository financial institutions, credit unions: are more beneficial to all kinds of consumers. pay lower interest on savings to their members. have a greater number of account holders. have a greater number of branches. charge lower rates on loans to their members.
charge lower rates on loans to their members.
Estate planning involves: considering how your wealth can be most effectively passed on to your heirs. determining the income you need to maintain. the dissolution of all privately held corporations. the valuation and auctioning of your valuables by hiring a professional tax planner. planning for retirement.
considering how your wealth can be most effectively passed on to your heirs.
The best way for a family to resolve money disputes is to: ensure that only one person in the family makes decisions regarding money. consistently communicate openly about money matters with family members. ensure that individuals do not interfere in other family members' financial matters. use a third party, who is not a part of the family, to settle disputes. maintain confidentiality regarding the reasons behind specific decisions.
consistently communicate openly about money matters with family members.
The liquidity ratio is designed to show the percentage of _____ you can cover with your current liquid assets. current debts current expenses long-term debts planned savings planned purchases
current debts
In account reconciliation, one of the steps in calculating the adjusted bank balance is: deducting total withdrawals still outstanding from the bank balance. deducting total deposits still outstanding from the bank balance. adding the total credit card outstanding balance to the bank balance. adding bank service charges to the bank balance. subtracting interest paid on the account's balance for the period.
deducting total withdrawals still outstanding from the bank balance.
Investment assets are acquired to: be used in our everyday lives. increase productivity. provide a service. earn a return. be easily converted to cash.
earn a return.
Individuals who have more formal education _____ than do those with lesser degrees. pay more tax penalty earn higher annual income save less money have less wealth have careers with less decision-making responsibility
earn higher annual income
Martha is 60 and has a very high net worth. Her most pressing financial concern is probably: asset acquisition planning. liability planning. estate planning. insurance planning. savings planning.
estate planning
A balance sheet describes your: financial position at a given point in time. financial performance over time. financial performance at a given point in time. financial goals over time. financial plans over time.
financial position at a given point in time.
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: single taxpayer. married filing jointly. married filing separately. head of household. qualifying widow with dependent child
head of household.
The federal government receives a majority of its revenue from ____ taxes. sales property excise income estate
income
You would typically include _____ in your gross income. child-support payments life insurance death benefit payments municipal bond interest income from pensions personal exemptions
income from pensions
If your statement of income and expense prepared on a cash basis shows a deficit, you have: increased your debts. liquidated your investments. increased your savings. taken a cash loan on your insurance. sold some securities.
increased your debts.
The financial planning process helps in: increasing assets. increasing debts. reducing utility. reducing financial flexibility. increasing financial risk
increasing assets
A _____ would most likely have to pay estimated taxes. school teacher manager for an industrial firm independent consultant state police officer corporate attorney
independent consultant
The consumer price index (CPI) is a measure of: unemployment. inflation. stagnation. recession. saving
inflation
Convenience is a reason for the growth in popularity of: Internet banks. savings and loan associations (S&Ls). mutual savings banks. credit unions. insurance companies.
internet banks
Sarah starts investing in an individual retirement account (IRA) at the age of 30 and earns 10 percent for 35 years. At age 65, she will get less returns as compared to those returns if she: starts investing at the age of 25. invests at 12 percent. invests for 45 years. invests up to the age of 60. earns 10 percent for 5 years and then 12 percent for 30 years.
invests up to the age of 60.
A safe-deposit box in a bank can be opened only when the: banker's key is used. account holder's key is used. keys of both the banker and the account holder are used. key issued to the insurance company is used. keys of both the banker and the insurance company are used.
keys of both the banker and the account holder are used.
_____ would be considered real property. Stocks Land Cash Bonds Clothing
land
Cash and near-cash resources are known as: liquid assets. long-lived assets. noncurrent assets. fixed assets. noncash assets.
liquid
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 is: single taxpayer. married filing jointly. head of household. qualifying widow or widower with dependent child. married filing separately.
married filing separately
Tax planning is most commonly done to: determine the tax penalty. evade taxes. minimize taxes. pay taxes the person considers to be fair. learn the tax code
minimize taxes.
A check you wrote to buy shoes last week has not yet been received and processed by the bank. It is said to be: outstanding. credited. endorsed. certified. deposited.
outstanding
Kate tends to issue checks quite often without having a sufficient balance in her account. She should look for a checking account with: no automated teller machine (ATM) access fees. overdraft protection. trust services. mutual fund management. balance tracking.
overdraft protection.
A savings ratio calculated from an income and expense statement represents the: percentage of gross income saved. ability to cover immediate debt when there is an interruption in income. percentage of after-tax income saved. percentage of tax-deferred income earned annually. percentage of asset value salvaged
percentage of after-tax income saved.
Mandi and Thomas were married and had a child, age 7, in 2018. Mandi died in 2018, leaving Thomas a single parent. The most favorable filing status for Thomas in 2019 will be: single. married filing separately. head of household. qualifying widower with dependent child. married filing jointly.
qualifying widower with dependent child.
The best approach to solve the problem of an annual budget deficit is to: liquidate more assets than required to meet the total budget shortfall for the year. borrow funds on credit cards. reduce flexible expenses for nonessential items. reduce fixed expenses. reduce high-priority expenses on the budget.
reduce flexible expenses for nonessential items.
A _____ is an example of a liquid asset. fixed deposit of 3 years savings account large cap dividend paying common stock retirement account car
savings account
A capital gain is the result of: selling a capital asset for less than its purchase price. holding a capital asset that has depreciated. selling a capital asset at its purchase price. selling a capital asset for more than its purchase price. buying a new capital asset at a rate lower than the market rate of the asset.
selling a capital asset for more than its purchase price.
Once you define your _____ financial goals, you can prepare a cash budget for the coming year. post-retirement short-term immediate long-term career-oriented
short-term
An individual's quality of life is closely tied to his or her: political orientation. charitable contributions. pollution control efforts. standard of living. educational qualifications.
standard of living
The purchase of _____ is an example of the purchase of a financial asset. a home stocks a car jewelry a vacation home
stocks
I should record _____ on my income and expense statement for the period of January 1 to June 30. an $800 refrigerator I bought on credit on May 30 an outstanding education loan account jewelry I purchased with an arrangement to pay later my checking account balance the groceries I bought and paid for in June
the groceries I bought and paid for in June
The more frequently a bank compounds interest, _____ for a given nominal rate. the higher the stated interest rate the lower the inflation rate the higher the effective rate the lower the yield rate the higher the normal rate
the higher the effective rate
A progressive tax structure is one in which: tax rates are directly proportional to inflation rates. the larger the amount of taxable income, the higher the rate at which it is taxed. tax rates are inversely related to inflation rates. everyone pays the same income tax rate. no exemptions or deductions are available
the larger the amount of taxable income, the higher the rate at which it is taxed.
The average propensity to consume refers to: the dollars of income spent on luxury goods. the dollars of income saved by an individual. expenditures on the basic necessities of life. the percentage of income spent for current needs. the fact that people with higher propensity to consume earn lower income.
the percentage of income spent for current needs.
Which of the following is subject to federal income tax? The tax credit earnings on a Roth individual retirement account (IRA) Municipal bond interest Child-support payments Tips received Personal exemptions
tips received
You are going on an overseas trip, and you want to carry checks. You should purchase: cashier's checks. certified checks. conditional checks. traveler's checks. guaranteed checks.
travelers
Compound interest means that a savings account earns interest on the interest previously earned. True False
true
The market price of a house is $125,000, and the home buyer borrows $100,000. Two points are equal to $2,000. True False
true
The _____ department of a bank provides investment and estate planning advice. safe-deposit electronic funds transfer debit card planning trust
trust
A key determinant of an individual's quality of life is his or her: tax bill. financial goals. wealth. motivation. growth potential.
wealth
Your income tax withholding is dependent on: your age and educational qualification. the number of deductions claimed by your spouse. your level of earnings and the number of withholding allowances you have claimed. the number of standard deductions you have claimed. the number of withholding allowances allowed by your employer.
your level of earnings and the number of withholding allowances you have claimed.
