Personal Finance Test 1
You tax rate is 15% and you have $350 of deductible expenses. You expect your income will increase in the next tax year but also that you will still be in the same tax bracket while your deductible expenses will double. What would be your tax savings in deductibles next year?
$105
If you are in the 25% or higher tax brackets, your tax rate on long-term capital gains (on assets held more than one year) is
15%
The Accounting Equation states that
Assets = Liabilities + Equity
Serena wants to see how her money from all sources came in and went out for all uses during each month of the past year. Which kind of financial statement does she need?
Cash flow statement
Businesses and industries are equally vulnerable to economic cycles.
False
Income tax is a regressive tax; the higher the income the lower the rate.
False
Once set, budgets should be followed without deviation.
False
Self-employed people and entrepreneurs report their business income on Schedule B.
False
Sound financial planning can help you avoid opportunity costs.
False
The time value of money can be understood but not calculated concretely.
False
To avoid disappointments, you should not be too conservative in your expectations.
False
If you had a budget surplus, which of the following choices would best increase that surplus?
Save and invest
Megan's balance sheet shows that on February 7, 2010 she had assets totaling $27,600 and debts totaling $32,500. Which of the following statements best describes her situation?
She had negative net worth.
A budget deficit is not sustainable; it is not financially viable.
True
A budget is a process that mirrors the financial planning process.
True
A budget should never be merely followed, but should constantly be revised to reflect new information.
True
Both budget deficits and budget surpluses need to be addressed by making financial decisions.
True
Budgets are usually created with a specific goal in mind, such as cutting spending.
True
Creating a budget involves projecting realistic behavior and evaluating your assumptions.
True
Depending on your tax bracket, your income is taxed at a rate of between 10% and 38%.
True
Evaluating alternatives for financial decisions always involves speculation.
True
Financial decisions are based on personal goals, opportunities, and risks.
True
Financial statements, such as balance sheets, are as useful in personal finance as they are in business finance.
True
Good financial decision making requires that you recognize sunk costs and their consequences.
True
Head-of-Household filing status is for a family of one adult with dependents.
True
In personal finance, income and expenses are recorded as cash flows at the time they occur.
True
Investing in or buying corporate stock is an example of selling capital in exchange for a share of the company's future value.
True
Opportunity costs and sunk costs are hidden expenses that affect financial decision making.
True
Opportunity costs are foregone choices or sacrificed alternative uses of wealth.
True
Personal financial planning includes decision making about education, employment, housing, transportation, and lifestyle.
True
Stock dividends and distributions from trusts are taxed as individual income.
True
The "natural" rate of unemployment tends to be consistently high, affecting the productivity of the economy.
True
The U.S. tax code is based on the idea that everyone should help finance the government according to ability to pay.
True
The capital budget accounts for capital expenditures or non-recurring items.
True
The filing status Married refers to two married adults who combine their incomes and file as one individual.
True
The most common accounting method used in personal finance is cash accounting.
True
The present value of a series of cash flows is simply the sum of the present values of each cash flow.
True
The purpose of pro forma financial statements is to show the consequences of choices.
True
The result shown on an income statement is personal profit or loss over a period of time.
True
Three commonly used financial statements are the income statement, the cash flow statement, and the balance sheet.
True
Time creates risks, uncertainties, opportunities, and opportunity costs.
True
Time discounts value.
True
U.S. form 1040 or 1040EZ is the form for an individual tax return.
True
Whatever his or her professional classification, any financial advisor you choose to work with should be certified in your state.
True
Your Adjusted Gross Income is further adjusted by deductions, exemptions, and credits.
True
Ewen's monthly cash flows typically total $3,000, of which operating cash flows total $2,150 and debt repayments total $650, giving him a free cash flow of $200. What financial decisions could he make about his free cash flow?
Whether to save or spend more, Whether to invest or finance more, & Whether to increase equity or reduce debt
To see what percentage of your total income is used for each expense you would create
a common-size income statement.
A period of declining productivity lasting less than half a year is called
a contraction
Cash or an asset that can be easily and quickly converted to cash is called
a liquid asset.
A kind of annuity that consists of cash flows of equal amounts occurring at regular intervals and that continues indefinitely is
a perpetuity.
A summary of income and expenses over a period of time is called
an income statement
Robin uses her checkbook register to record and balance each cash flow, in and out, as it occurs. This activity is called
bookkeeping & cash accounting
Understanding your current financial situation requires the ability to
calculate returns on investment, follow basic accounting procedures, & create financial statements
Your can claim exemptions for dependents, including
children., elderly parents, & disabled siblings.
Taxable individual income includes
distributions from trusts., stock dividends., & interest from banks.
The U.S. government offers tax deductions for all of the following items EXCEPT
gains from the sale of assets.
Dylan earns $24,500 a year as an office worker. He pays $1,000 a month for rent, $300 a month toward his car, and his other expenses come to around $1,200 a month. Dylan
has a budget deficit & should reduce expenses
Systemic or "macro" factors that affect financial thinking include all the following EXCEPT
life stages
Examples of recurring expenditures are
living expenses.
The purpose of pro forma financial statements is to show
projected future value., consequences of choices., & scenarios for financial planning.
The Consumer Price Index is a measure of
purchasing power
Periods of contraction in the economy often lead to
reduced returns on investment
The cash budget's greatest value is in clarifying
risks and choices in the timing of cash flows.
An example of a non-discretionary expense shown on an income statement is
taxes
Bankruptcy occurs when
there is negative net worth & debts are greater than asset
The best way to eliminate a deficit is
to increase income & to reduce expenses
Your career choice will have the greatest impact on your
wealth accumulation & income
The U.S. government levies taxes on income from all of the following sources EXCEPT
welfare benefits.
The existence of a budget variance indicates that
your estimate was inaccurate., factors changed unexpectedly, & your budget needs readjusting.
