Personal Finance Exam 1 (Ch 1,2,3)

Sam and his wife Ann purchased a home in Lubbock, Texas in 1980 for $100,000. Their original home mortgage was for $90,000. The house has a current market value of $175,000 and a replacement value of $200,000. They still owe $55,000 on their home mortgage. Sam and Ann are now constructing their balance sheet. How should their home be reflected on their current personal balance sheet?

$175,000 asset and $55,000 liability

The highest marginal tax rate is currently _________.

39.6%

Becky graduated with a master's degree in Personal Financial Planning. After working two years in a small financial planning firm, Becky earns $60,000 annually and saves $10,000 a year. What is her average propensity to consume?

83.3%

Which of the following is subject to federal income tax?

Alimony recieved

Balance sheet liabilities should be recorded at their:

Current outstanding balance

A person making $35,000 and spending $30,800 has an average propensity to consume of 80%.

False

An investment must be owned over two years in order to qualify for long-term capital gains treatment.

False

Financial planning is necessary only if you earn a lot of money.

False

How long you invest is not nearly as important as the rate of interest you can earn on your investments.

False

If you have any earned income, you are required to file a tax return.

False

Income shifting refers to the process of transferring income from the taxpayer to the IRS.

False

Inflation means price levels have declined.

False

Portfolio-related expenses can be written off against passive income.

False

The best way to balance your budget is to increase borrowing.

False

Using time value of money is most important when planning for short-term goals.

False

Understanding the economic environment will allow you to make better _____ decisions.

Financial

Your take-home pay is what you are left with after subtracting withholdings from your:

Gross earnings

A strong economy leads to:

Higher employment

The federal government gets the majority of its revenue from _____ tax.

Income

The _____ ratio indicates your ability to meet current debt payments.

Liquidity

When setting financial goals, one should typically start by setting:

Long-term goals

Personal Financial management is important because it:

Makes personal financial goals easier to achieve

_____ can be one of the most emotional issues in any relationship, including that with a partner, parents, or children.

Money

Which of the following is an illegal method of reducing your current tax liability?

Not reporting the taxable income you receive

If you are a professional who is likely to receive income that is not subject to withholding ,then you are required to _____.

Pay an estimated tax

Employee benefits may include:

Pension payments

Inflation refers to:

Rising prices

If you do not wish to itemize deductions, you can use the:

Standard deduction

10. Personal financial software is widely available, much of which is free.

True

A person who has $2,000 monthly income and spends $1,800 monthly has an average propensity to consume of 90%.

True

A special tax provision reduced the social security portion for the individual taxpayer by 2% in 2011 and 2012.

True

An investment must be owned over one year in order to qualify for long-term capital gains treatment.

True

Assets purchased on credit should be included on the asset side of the balance sheet.

True

Current consumption is inversely related to saving for the future.

True

Financial assets are intangible assets acquired to achieve long-term personal financial goals.

True

If you earn less than $15,000, you probably pay more in social security taxes than in federal income taxes.

True

If you listed your gross salary in the income portion of the budget, the expenditures section must include income taxes and social security.

True

Inability to reach short-term goals will significantly affect your ability to reach long-term goals.

True

Most families find it difficult to discuss money matters.

True

Tax avoidance is legal, tax evasion is illegal.

True

The sale of your home will rarely result in a taxable capital gain.

True

Two persons with equal average propensities to consume will not necessarily have equal standards of living because of differences in income.

True

Using the future value calculations to estimate the funds needed to meet a goal takes compounding into account.

True

Utility refers to the amount of satisfaction a person gets from buying certain items.

True

A primary determinant of your quality of life is your:

Wealth

_____ consists of financial and tangible assets.

Wealth

The three parts of your balance sheet are your:

assets, liabilities, and net worth.

The balance sheet describes a family's financial position:

at a certain point in time

A progressive tax system is one in which:

higher-income people pay tax at a higher rate than lower-income people.

An income statement includes:

income, expenditure, and cash surplus or deficit

When there is a cash surplus on your income and expense statement, your:

investment balance will be increased

A capital gain is the result of:

selling an asset for more than its purchase price.

The Wilson family's short-term goals might include:

setting up an emergency fun of three months' income

You are solvent if your:

total assets exceed total liabilities

Consumer choices ultimately determine the kinds of goods and services businesses will provide.

true

For most people working in large firms, employee benefits are an important part of their financial planning.

true

The amount of one personal exemption in 2008 was $3,500.

true

You have a balanced budget when total income for the year equals or exceeds total expenditures for the year.

true

Your income tax withholding is dependent on:

your income level and number of withholding allowances.​

What can you do if your budget shows an annual budget deficit?

​Liquidate enough savings and investments to meet the total budget shortfall for the year.