Fin 228 CH: 3&4

Which of the following provides deposit insurance for banks? Answers: FDIC FDCU NCUA SAIF None of these

FDIC

An IRS agent visited Henry's home to verify some information on his tax return. This visit was called a(n) Answers: Home audit. Field audit. Office audit. Detailed audit. Correspondence audit.

Field audit

When calculating federal income taxes, what increases "gross income"? Answers: Exclusions Gambling winnings Tax-deferred income Tax deductions Tax-exempt income

Gambling Winnings

If Brenda wants to pay her fair share of taxes, no more and no less, she should practice Answers: Tax avoidance. Tax evasion. Tax elimination. Tax acceleration. Tax maximization.

Tax Avoidance

When calculating federal income taxes, "gross income" includes all of the following except Answers: Tax-exempt income Earned income. Passive income. Investment income. Gambling winnings

Tax-Exempt Income

The Truth in Savings Act requires financial institutions to disclose the ________ on savings accounts. Answers: annual percentage yield (APY) compounding liquidity tax rate safety certification

annual percentage yield(APY)

If Cindy was in a 22% tax bracket and was able to take a $500 tax credit, by how much would her taxes be reduced? Answers: $522 $1000 $11 $500 $110

$500 Response Feedback:Taxes would be reduced by the full amount of the tax credit: $1,000.

If you deposited $2,000 each year for 40 years, into an account earning 8% interest (compounded annually), how much would you expect to have at the end of 30 years? Answers: $43,450 $80,000 $23,850 $86,400 $518,120

$518,120 APY = 100 × (Interest/Principal) = 100 × (280/4,000) = 7%.

Betsy Williams has the following tax information. If the Standard Deduction for 2019 is $12,200, calculate her taxable income.• Gross income: $62,250 • Investment income: $275• Itemized deductions: $9,000• Interest earned on her savings account: $150 • Adjustments to income: $2,000 Answers: $50,075 $48,475 $51,675 $62,675 $60,675

$48,475 Deductions include the following: State income tax + Mortgage interest + Charitable contributions = $1,000 + $7,000 + $1,250 = $9,250.Medical and dental expenses are not deductible because they must be greater than 10% of her AGI (42,000 × 10% = 4,200).

Using the following table, calculate the taxes for an individual with taxable income of $35,500. 10% Up to $8,500 15% $8,500-$34,500 25% $34,500-$83,600 28% $83,600-$174,400 33% $174,400-$379,150 35% Over $379,150 Answers: $8,875. $5,325. $3,550 $5,000. $4,050.

$5,000 Response Feedback:Taxes = (10% × $8,500) + (15% × {$20,800 − $8,500}) = $850 + $1,845 = $2,695.

Victor read the fine print for a checking account he was thinking about using. The fine print said, "A minimum balance of $500 is required. If your balance falls below this level, you will be assessed a monthly fee of $8." Since Victor was planning to keep only a $50 balance in his account, how much could he be charged each year? Answers: $400.00 $50.00 $60.00 $8.00 $96.00

$96.00 Response Feedback:Monthly fee ($10) × 12 months = $120.

George Franklin paid taxes of $4,375 on a taxable income of $32,000. What was his average tax rate? Answers: 28% 15% 13.7% 10% 25%

13.7% Response Feedback:Average taxes = Taxes paid/Taxable income = $4,375/$32,000 = 0.1367 = 13.67% or 13.7%.

Fred has been completing his own tax returns for years. The IRS has recently contacted him with questions about some of his prior returns. How many years back is he responsible for providing documentation? Answers: Until he files his returns. 3 years. 15 years. 10 years. 7 years.

7 Years

All of the following are non-deposit institutions except Answers: A finance company. A credit union. A credit card company An investment company. A life insurance company.

A Credit Union

Cathy needs a full range of financial services, including checking, savings, and lending. To which of the following should she go? Answers: A life insurance firm A pawnshop A check-cashing outlet A payday loan company A commercial bank

A commercial bank

The tax based on the total tax due divided by taxable income is called the Answers: Marginal tax rate. AMT. Average tax rate. Total tax rate. Income tax rate.

Average Tax Rate

Many people make mistakes when managing current cash needs. Which of these is NOT a frequently made mistake? Answers: Having insufficient liquid assets to pay current bills Using savings or borrowing to pay for current expenses Failing to put unneeded funds in an investment plan Overspending due to impulse buying and over using credit Budgeting for your spending

Budgeting for your spending

Taxable Income is calculated by the following: Answers: Gross Income minus itemized deductions minus taxes owed Gross Income minus adjustments minus tax credits Gross Income minus adjustments minus standard deduction Gross Income minus 401(k) contributions times the tax table Salary plus interest earned minus 401(k) contributions

Gross income minus adjustments minus standard deduction

Which of the following is correct about inflation? Answers: In order to increase buying power, you need to earn a rate higher than the rate of inflation. As the inflation rates increases, the interest rates offered to savers decrease. If you earn 5% and inflation is 10%, your buying power will increase. Inflation does not affect interest rates for savings accounts. If inflation is 7% and your rate of return in your savings account is 4%, you will experience an overall gain in buying power.

In order to increase buying power, you need to earn a rate higher than the rate of inflation

This tax is a major financial planning factor for most people because it is sometimes imposed at the federal, state, and local levels. Answers: Sales tax Estate tax Income tax Real estate property tax Excise tax

Income Tax

All of the following are examples of the four major taxable categories EXCEPT: Answers: Investments Property Purchases Wealth Earnings

Investments

Which of the following refers to the opportunity to withdraw your money on short notice without incurring a loss in value? Answers: Compounding Minimum deposit Rate of return Safety Liquidity

Liquidity

Which of the following will provide you with the highest rate of return? Answers: Monthly compounding Annual compounding Quarterly compounding Simple interest None of the above

Monthly Compounding

When interest rates are expected to be falling over the next several years, you would be well served to: Answers: Select 1 year Certificates of Deposit for savings and 1 year terms for loans Select short term savings instruments and lovk in fixed rates on long term loans Select long term savings instruments and variable rates on long term loans Select 1 year Certificates of Deposit for savings and 5 year terms for loans Select high yield bonds for savings and a pay day lender for loans

Select long term savings instruments and variable rates on long term loans

Taxes on your earnings that fund old age, survivor, and disability insurance benefits are called Answers: Real estate property taxes. Sales taxes. Excise taxes. Estate taxes. Social Security taxes.

Social Security Taxes