1). Identify the item that should be included on the statement of financial position.
Auto loan balance
Auto loan payment
Original mortgage amount
Section 401(k) elective deferrals
A
2). A client’s statement of financial position reflects $540,000 in total assets, $40,000 in current liabilities, and $240,000 in long-term liabilities. Calculate the client’s net worth.
$260,000
$300,000
$500,000
$540,000
A
3). A client has a net worth of $900,000 at the beginning of the calendar year. Calculate the client’s net worth at the end of this same calendar year after the following transactions:
- Repayment of a $25,000 loan using funds from a savings account
- Purchase of a $40,000 automobile with a $10,000 down payment and the remaining amount financed through a credit union
- A $12,000 increase in the client’s mutual funds account balances
- A $15,000 decrease in the client’s bond portfolio
$867,000
$897,000
$922,000
$925,000
B
4). Alex and Megan Laporte have come to you to discuss their financial goals. During your first meeting with them, you have received information regarding their assets and liabilities. The couple has a jointly owned $12,000 money market account. Megan inherited 100 shares of XYZ stock from her uncle, Allen. She is the sole owner of the stock, which is currently valued at $40,000. The couple also has a checking account balance of $5,000, and an $8,000 savings account balance. Both of these accounts are jointly owned. Alex and Megan are joint owners of an automobile valued at $28,000 with an outstanding loan of $12,000, a boat valued at $40,000 with an outstanding loan of $20,000, and jewelry valued at $30,000 purchased for cash two years ago. Alex and Megan also have credit card balances totaling $25,000. Together, they own a house valued at $300,000 with a current mortgage balance of $200,000. Alex has a 401(k) plan in which he is $68,000 vested. By filling in the blanks here, construct a statement of financial position for Alex and Megan.
5). Which of the following are NOT listed as outflows on the cash flow statement?
Fixed expenses
Variable expenses
Interest and dividends
Savings and investments
C
6). Which of the following are components of the statement of cash flows?
I. Taxes
II. Variable outflows
III. Net cash flow
IV. Cash and cash equivalents
I and III
III and IV
I, II, and III
I, III, and IV
C
7). Your client, Kamari, needs assistance preparing his statement of financial position and cash flow statement. He has an annual salary of $200,000 and pays $1,200 monthly in alimony to his ex-spouse, Diana. Kamari owns a condo valued at $300,000, which currently has an outstanding mortgage balance of $130,000. He pays annual property taxes of $4,000, and a monthly condo insurance premium of $250. All of the following statements are correct except
A). Kamari’s salary would be considered a cash inflow on his cash flow statement.
B). the alimony Kamari pays would be a cash inflow on Diana’s cash flow statement.
C). taxes paid on his property would be a liability on his statement of financial position.
D). the condo insurance payments would be a fixed outflow on Kamari’s cash flow statement.
C
9). Ollie earns an annual salary of $80,000. From this amount, he makes elective deferrals of 10% to his company’s 401(k) plan. His monthly mortgage payment (PITI) is $1,500. Calculate Ollie’s housing cost ratio.
1.8%
2.0%
22.5%
25.0%
C
10). Analyze the following scenario. Caitlin has the following assets: a checking account of $2,500, a savings account of $5,000, and a money market mutual fund of $3,500. She also has mutual fund investments totaling $125,000. She has a personal balloon note liability of $25,000 coming due within the next year. Does Caitlin’s current ratio represent a potential problem with respect to her financial situation?
No, her current investments are adequate to cover her current liabilities.
No, her current ratio is 1.44, which is very favorable.
Yes, her current ratio is only 0.44.
Yes, her current ratio is negative.
C
12). Identify the CORRECT statements regarding financial strengths and weaknesses.
I. Very general financial goals are considered a financial strength.
II. Inadequate retirement savings is considered a financial weakness.
III. Determining financial strengths and weaknesses is an objective process.
IV. Lack of a valid will is considered a financial weakness if a will is necessary to protect the interest of heirs.
I only
II and IV
III and IV
I, II, III, and IV
A
13). Which of the following can be monitored and evaluated through the use of a budget?
I. Income
II. Net worth
III. Expenses
IV. Spending patterns
I and III
II and IV
I, II, and III
I, III, and IV
D
14). Tim and Gina are working with you, their financial planner, to develop a budget. As part of the process, you ask them to list their discretionary and nondiscretionary expenses. Which of the following should Tim and Gina consider to be nondiscretionary cash outflows for planning purposes?
I. Utility bills
II. Loan payments
III. Travel and entertainment expenses
IV. Medical and dental insurance premiums
I and II
II and IV
I, II, and IV
I, II, III, and IV
C
15). After meeting with you, Janesh and Katie understand the need for an emergency fund. Janesh is a mechanic, and Katie volunteers at a local hospital. They ask you how much they should have in this fund. Which of the following is your best response?
An amount equal to 1 month of expenses
An amount equal to 3 months of expenses
An amount equal to 6 months of expenses
An amount equal to 12 months of expenses
C
16). Miguel and Michelle, both age 38, would like to create an emergency fund for major unexpected expenses. Which of the following accounts are appropriate for this fund?
I. Stocks and bonds
II. Savings account
III. Traditional IRA account
IV. Certificate of deposit (CD) with a three-month maturity
I and II
II and IV
III and IV
II, III, and IV
B
17). You have advised your client, Bette, that she needs to increase her savings. What might you recommend as good savings strategies?
I. Plant a large vegetable and herb garden.
II. Use an overdraft feature on her debit card.
III. Consider a health insurance plan with a lower deductible.
I only
I and II
II and III
I, II, and III
A
19). Over the years, Gabriel has made timely payments on three of his credit card accounts, all which have balances near the available credit limits. He also paid off a fourth credit card account, which he had for 20 years, and immediately closed it. Which of the following statements regarding Gabriel’s credit score is CORRECT?
I. By immediately closing his long-standing account when it was paid off, Gabriel likely increased his credit score.
II. Having three credit card account balances near their available credit limits adversely affects Gabriel’s credit score.
I only
II only
Both I and II
Neither I nor II
B
20). What is the best reason that your client, Jennie, should rent an apartment rather than purchase a home?
She does not want to do yard work.
She does not want to pay real property taxes.
She expects to relocate within one to three years.
She does not want to purchase homeowners insurance.
C
21). Which mortgage is generally available for lower-income households who would be unlikely to secure a conventional home loan?
Reverse mortgage
Balloon mortgage
Interest-only mortgage
Federal Housing Administration (FHA) mortgage
D
22). Oscar has just joined the faculty of a local college as an associate professor. He and his spouse, Kathy, would like to purchase a new home near the college. They are meeting with their loan officer to determine which mortgage would best suit their needs. Kathy is a stay-at-home mom raising the couple’s four school-age children; she sometimes provides bookkeeping services for her friends. Oscar and Kathy, both age 45, want a mortgage that offers the lowest monthly payment with a fixed interest rate. Based on this information, which mortgage would be the most appropriate choice?
Veterans Administration (VA) mortgage
Reverse mortgage
15-year conventional mortgage
30-year conventional mortgage
D
23). Which of the following statements regarding home equity lines of credit (HELOCs) is CORRECT?
I. Borrowers repay the loan with equal monthly payments over a fixed term.
II. Clients are given a set amount of credit from which they can draw from as funds are needed.
III. Borrowers make payments only on the amount they actually borrow, not the full amount available.
IV. HELOCs use the current equity in the homeowner’s primary residence to provide money for home improvements and other purposes.
II and IV
III and IV
I, II, and III
II, III, and IV
D
24). Which of the following actions would be appropriate for a homeowner who has a goal to retire debt and reduce the amount of total interest due over the life of his mortgage loan?
I. Replace a 30-year fixed-rate loan with a 15-year fixed-rate loan.
II. Replace a 15-year fixed-rate loan with a 30-year fixed-rate loan.
III. Replace a fixed-rate loan with a lower interest fixed-rate loan of the same term.
I only
I and III
II and III
I, II, and III
B
25). Which of the following statements regarding banks is CORRECT?
I. The Office of the Comptroller of the Currency (OCC) makes monetary policy.
II. The FDIC charters, supervises, and regulates national banks and federal branches of foreign banks located in the United States.
I only
II only
Both I and II
Neither I nor II
D
26). Larry and Brittany each have an individual account and a joint account with Crestview Bank. What is the maximum amount of FDIC insurance they each can have at the bank?
$125,000
$250,000
$500,000
$1,000,000
C
