Course 101 Unit 3 Quiz

The Powells have a net worth of $200,000 before any of the following transactions: - Paid off credit cards of $10,000 using the money in a savings account. - Transferred $4,000 from their checking account to their IRAs. - Purchased $2,000 of furniture on credit. What is the net worth of the Powells after these transactions? A)$200,000. B)$186,000. C)$184,000. D)$190,000.

A. $200,000. None of these transactions will change the Powells' net worth. Payment of the credit cards will reduce debt by $10,000. However, use of the savings account (to pay off the debt) will reduce assets by $10,000. The net effect on net worth is zero. The transfer from the checking account reduces assets by $4,000, and the transfer into the individual retirement accounts (IRAs) increases assets by $4,000. Therefore, the net effect on net worth is zero. The addition of the furniture will increase the client's assets by $2,000. However, the use of credit will increase the client's debt by $2,000. Therefore, the net effect on net worth is zero.

The following information is provided for Frank and Diane Wilson, ages 41 and 40, respectively: Assets Liabilities Checking account $2,100 Home mortgage $95,000 Money market $5,400 Auto loans $26,800 IRAs (1 year CD) $5,200 Credit cards $5,600 Mutual funds $25,280 Residence $150,000 Autos $40,000 Personal property $50,000 Vested Section 401(k) plan $200,065 Annual fixed expenses $18,600 Frank's gross salary $55,000 Annual variable expenses $43,900 Diane's gross salary $21,000 Based on the above data, what is the Wilson's net worth? A)$350,645. B)$356,245 C)$343,145. D)$358,345.

A. $350,645. Assets minus liabilities equals net worth. The Wilson's assets total $478,045 and their liabilities total $127,400. The difference is $350,645.

Which of the following are ways in which one's net worth can increase? 1. Depreciation in the value of the assets. 2. Addition of assets through gifts or inheritance. 3. Decrease in liabilities through forgiveness of debt. 4. Appreciation in the value of the assets. A)2, 3 and 4. B)1, 2 and 3. C)2 and 3. D)1, 2, 3 and 4.

A. 2, 3, and 4. Net worth will increase if the value of assets increases without an equal increase in liabilities. Net worth will also increase if liabilities are reduced without decreases to assets.

What is the most appropriate date to identify the statement of financial position of a calendar-year client for the year 2017? A)As of December 31, 2017. B)At January 1, 2018. C)For the period January 1 to December 31, 2017. D)For the period ending December 31, 2017.

A. As of December 31, 2017. The statement of financial position is presented as of a specified point in time (a snapshot as of a particular date) usually at the end of a calendar year.

What is the most appropriate date to identify the statement of cash flows of a calendar-year client for 2017? A)For the period ending December 31, 2017. B)For the period beginning January 1, 2017. C)For the period prior to January 1, 2018. D)At December 31, 2017.

A. For the period ending December 31, 2017. The statement of cash flows should specify beginning and ending dates and indicate a specific point in time. In this case, the calendar year ends on December 31, 2017. Note that the question addresses the year 2017. In the case of any period less than a full year, both the beginning and ending dates must be specified (e.g., for the period beginning April 1, 2017, and ending June 30, 2017).

Given the following data for Daphne Jones: Checking account $1,000 Mutual funds $60,000 Mortgage balance $95,000 Money market account $10,000 Sailboat $7,000 Stock portfolio $10,000 Automobile $35,000 Jewelry $5,000 Vested Section 401(k) plan $55,000 Auto loan $20,000 Personal assets $50,000 Credit card balance $5,000 90-day CD $2,000 Residence $150,000 What is the total value of her investment assets? A)$150,000. B)$125,000. C)$157,000. D)$152,000.

B. $125,000. Daphne's investment assets include: Mutual funds $60,000 Stock portfolio $10,000 Vested Section 401(k) plan $55,000 = $125,000

Given the following data for Daphne Jones: Checking account $1,000 Mutual funds $60,000 Mortgage balance $95,000 Money market account $10,000 Sailboat $7,000 Stock portfolio $10,000 Automobile $35,000 Jewelry $5,000 Vested Section 401(k) plan $55,000 Auto loan $20,000 Personal assets $50,000 Credit card balance $5,000 60-day CD $2,000 Residence $150,000 What is the total value of her personal use assets? A)$55,000. B)$247,000. C)$47,000. D)$97,000.

B. $247,000. Daphne's personal use assets include: Sailboat $7,000 Automobile $35,000 Jewelry $5,000 Personal assets $50,000 Residence $150,000 = $247,000

Jake and Ashley are working with their financial planner to develop a budget. The financial planner told them to list all of their fixed cash outflows and variable cash outflows on a questionnaire. Which of the following would be considered a fixed cash outflow for planning purposes? A)Travel and entertainment B)Mortgage payments C)Utilities D)Food

B. Mortgage payments. Only mortgage payments are considered to be a fixed cash outflow. Other examples of fixed cash outflows are car payments, insurance premiums, and property taxes.

Given the following data for Daphne Jones: Checking account $1,000 Mutual funds $60,000 Mortgage balance $95,000 Money market account $10,000 Sailboat $7,000 Stock portfolio $10,000 Automobile $35,000 Jewelry $5,000 Vested Section 401(k) plan $55,000 Auto loan $20,000 Personal assets $50,000 Credit card balance $5,000 90-day CD $2,000 Residence $150,000 What is her net worth? A)$505,000. B)$200,000. C)$265,000. D)$260,000.

C. $265,000. Daphne's net worth is calculated as follows: Total assets $385,000 Minus total liabilities − $120,000 = $265,000

Which of the following are included in a client's cash inflows? 1. Trust income. 2. Gross salary. 3. Rental income. 4. Tax refunds. A)2, 3 and 4. B)1 and 2. C)1, 2, 3 and 4. D)1 and 3.

C. 1, 2, 3, and 4

Julie and Charlie are meeting with their financial advisor to discuss their current financial situation. They have brought all the required documents to the first meeting. During the discussion, they referred to a number of financial transactions that had taken place during the prior year. Which of the following would affect their net worth? 1. Repayment of a loan using funds from a savings account. 2. Purchase of an automobile that is 75% financed after a 25% down payment. 3. Increase in the S&P 500 Index when client holdings include an S&P 500 Index mutual fund. 4. Increase in interest rates when client has a substantial bond portfolio. A)1, 3 and 4. B)1, 2 and 4. C)3 and 4. D)2 and 3.

C. 3 and 4. Payment of a liability would decrease the client's debt, and using the savings account would decrease the client's assets by the same amount. The addition of the automobile would increase the client's assets. However, the 25% down payment would decrease assets, and the 75% financed amount would increase the client's debt; therefore, the net effect on net worth would be zero. Statement 3 would increase net worth, and Statement 4 would decrease net worth.

Given the following data for Daphne Jones: Checking account $1,000 Mutual funds $60,000 Mortgage balance $95,000 Money market account $10,000 Sailboat $7,000 Stock portfolio $10,000 Automobile $35,000 Jewelry $5,000 Vested Section 401(k) plan $55,000 Auto loan $20,000 Personal assets $50,000 Credit Card balance $5,000 90-day CD $2,000 Residence $150,000 What is the total value of her cash/cash equivalent assets? A)$11,000. B)$10,000. C)$1,000. D)$13,000.

D. $13,000 Daphne's cash/cash equivalent assets include: Checking account $1,000 Money market account $10,000 90-day CD $2,000 $13,000

Which of the following statements regarding a personal statement of financial position are CORRECT? 1. A key formula within a statement of financial position is assets − liabilities = net worth. 2. Current liabilities are due within two years. 3. Long-term liabilities are due in more than two years. 4. Personal use assets include cars and furniture. A)2, 3 and 4 B)1, 2, 3 and 4 C)2 and 3 D)1 and 4

D. 1 and 4. Current liabilities are due in one year or less while long-term liabilities are due in more than one year.

Which of the following items would NOT be included on a statement of financial position? A)Automobiles. B)Mortgage balance. C)Mutual funds. D)Taxes paid.

D. Taxes paid. Taxes paid would be an expense listed on the statement of cash flows.