ch. 1-3

What is the equation to calculate net worth?

Assets - Liabilities = Net Worth

Income that is not subject to tax is called a) Earned income. b) Adjusted gross income. c) Tax-deferred income. d) Tax-exempt income. e) Passive income.

d) Tax-exempt income

To calculate the time value of money, we need to consider all of the following except the a) Principal. b) Length of time the money is on deposit. c) Annual interest rate. d) Type of investment. e) Amount of the savings.

d) Type of investment

Tanya is a single low-income working parent, and Fred is a single high-income working parent. Because of her status, Tanya, but not Fred, may be eligible for the a) Alternative minimum tax. b) Student deduction. c) Earned income credit. d) Itemized deduction credit. e) Withholding credit.

c) Earned income credit

An example of a variable expense is a(n) a) Installment loan payment. b) Mortgage or rent payment. c) Electric bill. d) Monthly allocation for life insurance. e) Monthly train ticket for commuting to work.

c) Electric bill

Which of the following is a long-term goal that is stated most clearly using the SMART approach? a) Set up an emergency fund b) Buy a car for less than $15,000 within 6 months c) Invest $50/month for the next 12 years for my nephew's college fund

c) Invest $50/month for the next 12 years for my nephew's college fund

Income that is taxed at a later date is a) Earned income. b) Tax-exempt income. c) Tax-deferred income. d) Exclusions from income. e) Adjusted gross income.

c) Tax-deferred income

Peter filed his federal income taxes, but he needs to make a correction to his income. Which form should he use? a) 1040 b) 1040A c) 1040Z d) 1040X e) 1040EZ

d) 1040X

When calculating federal income taxes, "gross income" includes all of the following except a) Earned income. b) Investment income. c) Passive income. d) Earned income credit. e) Alimony.

d) Earned income credit

Which of the following ratios indicates the number of months in which living expenses can be paid if an emergency arises? a) Debt ratio b) Current ratio c) Debt payments ratio d) Liquidity ratio e) Savings ratio

d) Liquidity ratio

If I can invest a dollar today and earn interest on it, then it should be worth ________ in the future. a) Either less or the same as b) Less c) Either the same as or more d) More e) The same as

d) More

If Brenda wants to pay her fair share of taxes, no more and no less, she should practice a) Tax evasion. b) Tax elimination. c) Tax maximization. d) Tax avoidance. e) Tax acceleration.

d) Tax avoidance

If inflation is expected to be 8 percent, how long will it take for prices to double? a) 6 years b) 12 years c) 18 years d) 7 years e) 9 years

e) 9 years

According to Tax Service Warnings, who is responsible for supplying accurate and complete information for completing a tax return? a) Taxpayer's dependents b) IRS enrolled agent c) Taxpayer's attorney d) Professional tax preparer e) Taxpayer

e) Taxpayer

List 5 filing status categories

Single Married, filing joint returns Married, filing separate returns Head of household Qualifying widow/widower

True or False? Cash and prizes won on television game shows are subject to both federal and state taxes

True

True or false? A tax credit has a full dollar effect in lowering taxes.

True

True or false? Every taxpayer receives at least the standard deduction, a set amount on which no taxes are paid.

True

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

True

True or false? The IRS has made online filing free for millions of taxpayers through the Free File Alliance.

True

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

True

True or false? When prices are increasing at a rate of 4 percent, the cost of products would double in about 18 years.

True

Gross income less Adjustments to Income equals a) Adjusted gross income. b) Exclusions from income. c) Tax-deferred income. d) Earned income. e) Tax-exempt income.

a) Adjusted gross income

When calculating federal income taxes, what increases "gross income"? a) Alimony received b) Tax-deferred income c) Tax deductions d) Exclusions e) Tax-exempt income

a) Alimony received

Who is less likely to be harmed by inflation? a) Borrowers b) Financial regulators c) Retired people d) Lenders e) Fixed income consumers

a) Borrowers

When Paul completes his taxes, he can include all of the following as exemptions except a) His 20-year-old son who is working full-time and living in an apartment. b) His 12-year-old son. c) His wife. d) Himself. e) His 22-year-old daughter who is a full-time student.

a) His 20-year-old son who is working full tie and living in an apartment

True or false? Individuals are allowed to give money or items of any value to a person without being subject to estate taxes.

False

True or false? Most states do not require state income taxes.

False

True or false? Tax rate schedules list average tax rates.

False

True or false? Using tax software will not save a taxpayer any time when preparing Form 1040.

False

True or False? Inflation is most harmful to people with incomes expected to increase.

False (Inflation is most harmful to those with fixed incomes)

The rate used to calculate the tax due on the next dollar of income is referred to as the a) Marginal tax rate. b) Average tax rate. c) AMT. d) Total tax rate. e) Income tax rate.

a) Marginal tax rate

Which of the following would increase the interest rate for a loan? a) Poor credit rating b)Lower consumer prices c)Higher down payment d)Expected lower inflation e)Short time to maturity

a) Poor credit rating

An advantage of investing in a 401(k) plan is the a) Possibility of receiving an employer match on your contributions. b) Ability to invest up to 25% of your annual income. c) Opportunity to save $25,000 per year. d) Ability to withdraw contributions before age 55 without penalty. e) Ability to pay taxes on distributions.

a) Possibility of receiving an employer match on your contributions

At the end of the year, Xavier received a form from his employer that reported annual earnings and the amounts deducted for taxes. That form is called a a) W-2. b) Schedule A. c) W-4. d) 1040. e) 1099.

a) W-2

A family with $100,000 in assets and $60,000 of liabilities would have a net worth of a) $100,000. b) $40,000. c) $60,000. d) $160,000. e) $20,000.

b) $40,000

Susan Smith has a goal of "saving $25 per month for a TV." Considering the SMART approach, Susan's goal lacks a) An action-orientation b) A time frame c) Measurable terms d) A specific objective e) A realistic perspective

b) A time frame

A debt ratio of 0.5 indicates a) For every dollar of take-home pay, monthly credit payments equal $0.50. b) For every dollar of net worth, debt equals $0.50. c) For every dollar of assets, monthly credit payments equal $0.50. d) The balance on the mortgage = 50% of the value of the home. e) For every dollar of debt, net worth equals $0.50.

b) For every dollar of net worth, debt equals $0.50.

Nancy is married to Jerry and needs to complete her tax form. They both earn about the same amount of money each year. What filing status would be best for them? a) Single b) Married, filing a joint return c) Qualifying widow or widower d) Married, but filing individually e) Head of household

b) Married, filing a joint return

A worker's primary goal should be to a) Pay the average tax rate for people working in his or her industry. b) Pay his or her fair share of taxes while taking advantage of appropriate tax benefits. c) Pay his or her taxes using estimates for income and deductions. d) Pay no taxes of any type. e) Pay no income taxes.

b) Pay his or her fair share of taxes while taking advantage of appropriate tax benefits

The consumer price index measures: a) The change in prices of a fixed basket of goods and services around the world b) The average change in prices of a fixed basket of goods and services of urban consumers c) The prices of goods and services in Bolivia d) None of these choices are correct. e) The prices of a fixed basket of goods and services in the United States

b) The average change in prices of a fixed basket of goods and services of urban consumers

Opportunity cost refers to a) The amount paid for taxes when a purchase is made. b) What you give up by making a choice. c) Current interest rates. d) Evaluating different alternatives for financial decisions. e) Money needed for major consumer purchases.

b) What you give up by making a choice

Which of the following short-term goals is stated most clearly using the SMART approach? a) Retire in 10 years at age 65 with $2,000,000 in my 401(k) account b) Within the next 6 months, buy a car for less than $15,000 c) Invest $50 per month for the next 12 years for my nephew's college fund d) Purchase a house with a mortgage no greater than $150,000 within 5 years e) Set up an emergency fund

b) Within the next 6 months, buy a car for less than $15,000

All of the following are fixed expenses except a) A monthly train ticket for commuting to work. b) An installment loan payment. c) A monthly allocation for life insurance. d) A mortgage or rent payment. e) Utilities.

e) Utilities