Finan 1200 Spring 2016 Exam #1
1.
Inflation reduces the buying power of money. TRUE
2.
Lenders benefit more than borrowers in times of high inflation. FALSE
3.
A financial plan is another name for a budget. FALSE
4.
Opportunity costs refer to what a person gives up when making a decision. TRUE
5.
With an inflation rate of 9 percent, prices would double in about ___________ years.
A.
4
B.
6
C.
8
D.
10
E.
12
Rule of 72, 72/9 = 8
6.
The ability to convert financial resources into usable cash with ease is referred to as:
A.
bankruptcy.
B.
liquidity.
C.
investing.
D.
saving.
E.
opportunity cost.
7.
Which of the following goals would be the easiest to implement and measure its accomplishment?
A.
"Reduce our debt payments."
B.
"Save funds for an annual vacation."
C.
"Save $100 a month to create a $4,000 emergency fund."
D.
"Invest $2,000 a year for retirement."
E.
"Increase our emergency fund."
8.
Opportunity cost refers to:
A.
money needed for major consumer purchases.
B.
what a person gives up by making a choice.
C.
the amount paid for taxes when a purchase is made.
D.
current interest rates.
E.
evaluating different alternatives for financial decisions.

Finan 1200 Spring 2016 Exam #1
9.
If a person deposited $50 a month for 6 years earning 8 percent, this would involve what type of computation?
A.
simple interest
B.
future value of a single amount
C.
future value of a series of deposits
D.
present value of a single amount
E.
present value of a series of deposits
10.
Which type of computation would a person use to determine current value of a desired amount for the future?
A.
simple interest
B.
future value of a single amount
C.
future value of a series of deposits
D.
present value of a single amount
E.
present value of a series of deposits
11.
If you put $1,000 in a saving account and make no further deposits, what type of calculation would provide you with the value of the account in 20 years?
A.
future value of a single amount
B.
simple interest
C.
present value of a single amount
D.
present value of a series of deposits
E.
future value of a series of deposits
12.
The uncertainty associated with decision making is referred to as:
A.
opportunity cost.
B.
selection of alternatives.
C.
financial goals.
D.
personal values.
E.
risk.
13.
The annual price increase for consumer goods and services measured by the Bureau of Labor
Statistics is referred called ________.
A.
deflation
B.
inflation
C.
the consumer price index
D.
the price calculator
E.
goods and all of the above
14.
A job tends to have less of a long-term commitment to a field than a career. TRUE
15.
A tax-exempt employee benefit is usually more advantageous than a tax-deferred benefit.
TRUE

Finan 1200 Spring 2016 Exam #1
16.
Opportunity costs are only associated with money management decisions involving longterm financial security. FALSE
17.
A budget is a specific plan of how a person or family will spend their money. TRUE
18.
A person's net worth is the difference between the value of the items owned and the amounts owed to others. TRUE
19.
Furniture, jewelry, and an automobile are examples of liquid assets. FALSE
20.
If expenses for a month are greater than income, an increase in net worth will result. FALSE
21.
A personal balance sheet presents:
A.
amounts budgeted for spending.
B.
income and expenses for a period of time.
C.
earnings on savings and investments.
D.
items owned and amounts owed.
E.
family financial goals.
22.
A family with $45,000 in assets and $22,000 of liabilities would have a net worth of:
A.
$45,000.
B.
$23,000.
C.
$22,000.
D.
$67,000.
E.
$41,000.
$45,000 (assets) - $22,000 (liabilities) = $23,000 (net worth)
23.
Items that you own with a monetary worth are referred to as:
A.
liabilities.
B.
variable expenses.
C.
net worth.
D.
income.
E.
assets.
24.
Liquid assets refer to:
A.
amounts that must be paid soon.
B.
cash and other items that are easily converted to cash.
C.
total income available to a family for spending.
D.
the value of investments.
E.
amounts on which taxes must be paid.

Finan 1200 Spring 2016 Exam #1
25.
A person's net worth is computed by:
A.
adding assets and liabilities.
B.
deducting current living expenses from total assets.
C.
subtracting total liabilities from total assets.
D.
subtracting assets from current liabilities.
E.
adding liabilities and budgeted expenses.
26.
Total earnings of a person minus the deductions for taxes and other items is called:
A.
budgeted income.
B.
gross pay.
C.
net worth.
D.
total revenue.
E.
take-home pay.
27.
A common deduction from a person's paycheck is for:
A.
interest.
B.
taxes.
C.
rent.
D.
unemployment.
E.
current liabilities.
28.
Payments that do not vary from month to month are ____________ expenses.
A.
fixed
B.
usage
C.
variable
D.
luxury
E.
output
29.
Which of the following payments would be considered a variable expense?
A.
rent
B.
installment loan payment
C.
mortgage payment
D.
payment on a car loan
E.
water bill
30.
A decrease in net worth could be the result of:
A.
income exceeding expenses for a month.
B.
expenses exceeding income for a month.
C.
assets exceeding expenses.
D.
increased earnings on the job.
E.
income and expenses being equal for a month.

Finan 1200 Spring 2016 Exam #1
31.
If a family planned to spend $370 for food during March but only spent $348, this difference would be referred to as a:
A.
variance.
B.
deficit.
C.
fixed living expense.
D.
budget reduction.
E.
contribution to net worth.
32.
A budget deficit would result when a person's or family's:
A.
actual expenses are less than planned expenses.
B.
actual expenses are greater than planned expenses.
C.
actual expenses equal planned expenses.
D.
assets exceed liabilities.
E.
net worth decreases.
33.
Kyle Burroughs has decided to put $25 more per week in his savings account. He knows this will reduce his ability to go out to eat each week but thinks building his savings is important.
This would be an example of:
A.
a budget variance.
B.
an opportunity cost.
C.
a balance sheet.
D.
an accounting error.
E.
a budget anomaly.
34.
Nick Boss has a savings account with $550 in it. He knows that he can withdraw this money whenever he wishes. This would be an example of:
A.
money management.
B.
an opportunity cost.
C.
a limited asset.
D.
a liquid asset.
E.
net worth analysis.
35.
Karen Price has created a financial statement for herself that lists all of the assets she owns as well as the debts she owes. This would be an example of:
A.
money management.
B.
opportunity cost analysis.
C.
a balance sheet.
D.
a liquidation exercise.
E.
a budget variance.

Finan 1200 Spring 2016 Exam #1
36.
Patricia McDonald has determined that the value of her liquid assets is $4,500, the value of her real estate is $128,000, the value of her personal possessions is $62,000, and the value of her investment assets is $73,000. She has also determined the value of her current liabilities is
$7,500 and the value of her long term liabilities is $98,000. What is Patricia's net worth?
A.
$267,500
B.
$105,500
C.
$162,000
D.
$205,500
E.
$132,000
Total assets = $4,500 + 128,000 + 62,000 + 73,000 = $267,500; Total liabilities = $7,500 +
98,000 = $105,500; Net worth = $267,500 - 105,500 = $162,000
37.
A state may impose a personal property tax. TRUE
38.
Real-estate property taxes are a major source of revenue for local governments. TRUE
39.
An estate tax is imposed on the value of an individual's property at the time of his or her death. TRUE
40.
An exclusion is earnings not included in taxable income. TRUE
41.
Exemptions are deductions for yourself, your spouse, and qualified dependents that you can deduct from adjusted gross income. TRUE
42.
A tax credit is an amount subtracted directly from the amount of taxes owed. TRUE
43.
Interest earnings of $1,600 from a taxable investment for a person in a 28 percent tax bracket would result in after-tax earnings of:
A.
$1,600
B.
$1,152
C.
$1,100
D.
$448
E.
$152
$1,600 x (1 - .28) = $1,152
44.
A taxpayer with a taxable income of $47,856 and a total tax bill of $5,889 would have an average tax rate of ____ percent.
A.
8.6
B.
10.3
C.
12.3
D.
14.2
E.
16.7

Finan 1200 Spring 2016 Exam #1
$5,889/$47,856 = .123 or 12.3%
45.
A person has $4,000 in medical expenses and an adjusted gross income of $32,000. If taxpayers are allowed to deduct the amount of medical expenses that exceed 7.5 percent of adjusted gross income, what would be the amount of the deduction in this situation?
A.
$300
B.
$1,600
C.
$2,400
D.
$4,000
E.
$32,000
.075 x $32,000 = $2,400; $4,000 - 2,400 = $1,600
46.
Which of the following would be deducted from gross income to obtain adjusted gross income?
A.
alimony payments
B.
mortgage interest
C.
medical expenses
D.
child support payments
E.
charitable contributions
47.
Which one of the following items is a set amount of income on which no taxes are paid?
A.
itemized deductions
B.
standard deduction
C.
earned tax credit
D.
withholding
E.
capital gains
48.
An expense that would be included in the itemized deductions of a taxpayer is:
A.
personal postage expenses.
B.
life insurance premiums.
C.
real estate property taxes.
D.
a driver's license fee.
E.
annual interest paid on credit cards.
49.
_____________ are expenses that a taxpayer is allowed to deduct from adjusted gross income.
A.
Exemptions
B.
Exclusions
C.
Itemized deductions
D.
Tax credits
E.
Passive income

Finan 1200 Spring 2016 Exam #1
50.
A deduction from adjusted gross income for yourself, your spouse, and qualified dependents is:
A.
the standard deduction.
B.
a tax credit.
C.
an itemized deduction.
D.
an exclusion.
E.
an exemption.
51.
A tax credit of $50 for a person in a 28 percent tax bracket would reduce a person's taxes by:
A.
$10.
B.
$28.
C.
$14.
D.
$50.
E.
$35.
52.
The Form 1040 is most helpful to a person who:
A.
is single with no other exemptions.
B.
makes less than $50,000 with no interest or dividends.
C.
itemizes deductions.
D.
has exempt income.
E.
has a simple tax situation.
53.
Itemized deductions are recorded on:
A.
Form 1040A.
B.
Schedule A.
C.
Schedule B.
D.
Form 2106.
E.
Form 1040 B
54.
(p. 119)
A person with a total tax liability of $4,350 and withholding of federal taxes of $3,975 would:
A.
receive a refund of $3,975.
B.
owe $4,350.
C.
owe $375.
D.
receive a refund of $4,350.
E.
receive a refund of $375.
$4,350 - $3,975 = $375
55.
A allows a taxpayer to put pre-tax dollars into an employer-sponsored program to cover medical and child care costs.
A.
tax credit
B.
tax deduction
C.
flexible spending account
D.
tax deferred investment
E.
tax exempt investment