personal finance ch 4 & 5

A regular savings account usually offers a higher rate of return to savers than other savings plans. True False

FALSE

Itemized deductions are recorded on: a.) Schedule A. b.) Form 1040A. c.) Form 2106. d.) Schedule B.

a.) Schedule A.

Which of the following is a benefit of a U.S. Savings Bond? a.) Exempt from state and local income taxes b.) Rate varies with market interest rates c.) All of the above are benefits d.) Government guaranteed e.) Low minimum deposit

c.) All of the above are benefits

Mike Hansen has adjusted gross income of $28,000. During the year, Mike decided he needed a larger home. He purchased a home on a golf course in the same town as his first home. Mike incurred $7500 in moving expenses. How much of this can he deduct from adjustable gross income? $6340 $7500 $560 $0 None of the above

$0

A tax credit is an amount subtracted directly from the amount of taxes owed. False True

TRUE

Demand deposits is another term for checking accounts. False True

TRUE

Elaine's Embroidery Emporium which is run out of Elaine's home is visited by an IRS agent who wants to verify the office expenses Elaine claims are valid. What type of IRS audit is this? a.) A field audit b.) An office audit c.) A detailed audit d.) None of the above e.) A correspondence audit

a.) A field audit

Which of the following institutions is organized primarily to provide loans to purchase homes? a.) A mortgage company b.) A life insurance company c.) A finance company d.) All of the above are organized to provide loans to purchase homes e.) A pawnshop

a.) A mortgage company

____________ specialize in helping people save money in a manner than provides high liquidity. a.) Investment companies b.) Consumer finance companies c.) Life insurance companies d.) Commercial banks e.) Credit unions

a.) Investment companies

Union dues, fees for tax return preparation, and other miscellaneous expenses are: a.) deductible for the amount that exceeds two percent of adjusted gross income. b.) deductible for self-employed individuals only. c.) fully deductible. d.) deductible for people in certain income categories. e.) not deductible.

a.) deductible for the amount that exceeds two percent of adjusted gross income.

An exemption affects a person's tax situation by: a.) reducing the taxpayer's taxable income. b.) increasing the standard deduction. c.) decreasing itemized deductions. d.) increasing the taxpayer's marginal tax rate. e.) increasing tax-exempt income.

a.) reducing the taxpayer's taxable income.

When interest rates are rising, a person would be best served by: a.) short-term savings instruments. b.) short-term loans. c.) variable-rate loans. d.) long-term savings instruments.

a.) short-term savings instruments.

Kevin Friedman only needs to write a couple of checks each month. Which type of checking account would best serve his needs? a.) an EFT account b.) an activity account c.) a share draft account d.) an interest-earning checking account e.) a NOW account

b.) an activity account

In the bank reconciliation process, service fees should be: a.) added to the bank statement balance. b.) subtracted from the checkbook balance. c.) subtracted from the bank statement balance. d.) added to the checkbook balance.

b.) subtracted from the checkbook balance.

____________ are expenses that a taxpayer is allowed to deduct from adjusted gross income. a.) Exemptions b.) Passive income c.) Itemized deductions d.) Exclusions e.) Tax credits

c.) Itemized deductions

Alex Bates goes on Jeopardy and earns $875,000 in winnings. What type of income is this? a.) Passive Income b.) Earned Income c.) Other Income d.) Investment Income

c.) Other Income

Which type of tax expert would be of most value when you have a difference of opinion with the IRS? a.) a nationally-chartered tax preparer b.) a tax accountant c.) an attorney d.) an enrolled agent e.) a CPA

c.) an attorney

Comparison of earnings for different savings plans can best be accomplished using the: a.) after-tax rate of return. b.) discounted present value. c.) annual percentage yield. d.) net present value. e.) compounded rate of return.

c.) annual percentage yield.

The ______________ property tax is based on the value of land and buildings. a.) personal b.) direct c.) real estate d.) proportional e.) regressive

c.) real estate

A person with a total tax liability of $4,350 and withholding of federal taxes of $3,975 would: a.) receive a refund of $375. b.) receive a refund of $3,975. c.) owe $4,350. d.) owe $375. e.) receive a refund of $4,350.

d.) owe $375.

Capital gains a.) tax-deferred investments. b.) tax-exempt investments. c.) retirement accounts. d.) profits from the sale of an investment asset. e.) earnings from investments such as dividends or interest.

d.) profits from the sale of an investment asset.

Which of the following is an important suggestion when you are audited by the IRS? a.) Be as brief as possible b.) Answer the questions clearly and completely c.) Present tax records in a logical calm and confident manner d.) Be on time to the audit e.) All of the above are important suggestions when you are audited

e.) All of the above are important suggestions when you are audited

Bart Rodr puts $5000 in a bank CD. This CD pays Bart an interest rate of 6% and he has committed his funds for the next three years. What type of financial service is Bart using? a.) Borrowing services b.) Trust services c.) Payment services d.) None of the above e.) Savings services

e.) Savings services

The rate an individual will pay for borrowing to purchase a new home is: a.) None of the above b.) The discount rate c.) The Treasury bond rate d.) The prime rate e.) The mortgage rate

e.) The mortgage rate

Which of the following people is least likely to have to file a federal income tax return? a.) a U.S. citizen living and working in a foreign country b.) a college student c.) a U.S. citizen who is a resident of Puerto Rico d.) a person over age 65 e.) a person earning less than $7,950

e.) a person earning less than $7,950

Savings compounded ____________ would have the highest effective yield. a.) weekly b.) annually c.) semi-annually d.) monthly e.) daily

e.) daily

A trust has the purpose of: a.) obtaining low-interest loans. b.) solving a person's financial problems. c.) handling daily money management activities. d.) improving a person's budgeting skills. e.) managing the assets of a person.

e.) managing the assets of a person.

Exemptions are expenses that a taxpayer is allowed to deduct from adjusted gross income. True False

FALSE

The more frequent the compounding, the less a person will earn on a savings account. True False

FALSE

The use of electronic banking adds to the "float" time for financial services customers. True False

FALSE