Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CFP Flash Cards > General Principals > Flashcards

General Principals Flashcards

1
Q

Current assets

A

Cash equivalents, accounts receivable, marketable securities and inventory

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Piti-principal interest taxes insurance acceptable

A

28% of gross income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Acceptable of total debt

A

36% of gross income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Acceptable of total debt

A

36% of gross income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What does a balance sheet have on it

A

Assets, Liabilities, Net worth
No cash flow

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Three step calculation-what are we calculating in each step

A

Step 1-FV of inflated amount needed
Inflation rate
Step 2-PV needed for lump sum
Beg and real rate
Step 3-PV or PMT needed to fund goal. FV giving or from step 2
Interest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

MAGI limits for child credits

A

160-180k
RTFQ
Plus loan for parents making too much money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Kiddie tax
Interest and dividends
$2700

A

Income $2700
Standard deduction -$1300
Taxable at 10% -$1300 =$130 tax
Parents tax rate (24%) $100=$24.00
Total tax is $154

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Qualified tuition program or 529
A gift of current interest, what can it be called through initials

A

Qtp

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Unmarried domestic partner estate plan

A

Revocable trust and tenant in common titling
Why?

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is a Cobra exception for an employer?

A

Under 20 employees
20 employed count part time if (50% of business day)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Cobra-voluntary or involuntary termination or change from full time to part time

A

Terminated employees and dependents can get up to 18 months of coverage

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Cobra- employee’s death, divorce, legal separation or eligible for Medicare, loss of dependent status (marriage, reaching dependent age limit

A

Spouse and dependents up to 36 months

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Structured settlement

A

Stream of tax free (because did not take receipt of the funds) income from a negligent accident to support to meet medical and living expenses.
Could be settled privately or in court

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Compensatory damages

A

Typical tax free but interest is taxed
Damages from age sex or race is taxed unless needed for the emotional distress like psychiatric care (tax free)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Punitive damages

A

Generally taxed
Intended to punish wrongdoing, not for injuries
Damages to beneficiaries in wrongful death is tax-free

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Prizes and awards

A

Taxed on whole amount unless annuities over 10 years. If over tax years taxed as received

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Fiscal policy

A

The fed controls money supply. Federal taxation and spending to level out business cycle, achieve full employment, price stability, and sustained growth in economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Monetary policy

A

The fed reserve influences the money supply to loosen or tighten the flow of credit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Reserve requirement for banks/fed

A

Example: Reserve requirement is 10% bank can lend 90% of deposits
Easy money-reduce requirements
Tight money-increase requirements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Discount rate when talking about the fed

A

Rate the fed charges its member banks to borrow to meet the reserve requirement
Not prime rate
Easy money-lower rate
Tight money-higher

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Open market

A

Fed buys and sells securities daily
Repo/buy bonds-easy money/injection
Reverse repo/sell bonds/taking money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Margin rate

A

Reg T
Decrease margin percentage-easy money
Increase margin percentage-tight money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Fed funds rate

A

Set by auction

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Supply

A

Supply is the amount of goods a producer is willing to sell
Price
Cost of production
Level of technology

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Demand

A

Is the amount of goods or services that buyers are willing to purchase
Price
Price of other goods
Consumers’ incomes and tastes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Leading economic indicators

A

Anticipate move or change in the economy
Unemployment claims
New manufacturing orders
New private housing units
Stock prices, 500 common stock
Index of consumer expectations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Coincident indicators

A

Move in tandem with economy
Industrial production
Personal income less social security, welfare
Non farm payroll

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Lagging indicator

A

Confirming indicator
Average duration of unemployment
Average prime rate charged by banks
Commercial and industrial loans
Credit outstanding to income
Change cpi

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

CPI

A

Consumer price index basket of goods in various cities
CPI-U is widely reported

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Seven CPI categories

A

Medical care

Food and beverage
Apparel
Transportation
Housing
Education and communication
Recreation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Producer price index (PPI)

A

Farm products and industrial commodities
The leading indicator to cpi is ppi
As producer cost rise, they are passed to consumers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Disinflation

A

The slowing down of price increases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Yield curve

A

The direction of interest rates move determines what happens to bonds.
The curve shows market rates of different maturities with the same rating

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Positive yield curve

A

Shows that as maturities lengthen, yields increase. Investors demand better yield with added risk

36
Q

Negative or inverted yield curve

A

When the fed tightens and raises interest rates, the short-term rates are more attractive then long term rates

37
Q

Yield curve components

A

Yield to maturity
Same tax status
Term-to-maturity
Same bond quality

38
Q

Couple getting a divorce

A

Can represent one, both or neither
Suggest they get separate attorney’s

39
Q

Divorce alimony pre 2019

A

Paying the payee’s mortgage
Paying the premium on the payee’s life insurance
Making a payment for the payee ie IRA
Not deducting-Paying of child support

40
Q

Business cycle peaks

A

When consumers have enough of everything so business activity ages

41
Q

Unsecured debt

A

Consumer borrows on credit worthiness and no collateral is pledged
Signature only debt

42
Q

Adjustable-Rate Mortgage(ARM)

A

Interest rates fluctuates with the economy. Limits on the change, how much and how often

43
Q

Biweekly payments for mortgage

A

Payments due every two weeks, loan will be paid off faster

44
Q

Balloon payments

A

Long term mortgage at given interest rates. Example after 5 years the unpaid balance is due or you have to refinance

45
Q

Secured overnight financing rate(sofr)

A

Benchmark rate used by financial institutions for adjustable rate mortgage loans

46
Q

Federal housing administration (FHA)

A

Government insurance that reduces risk to the lender for low and middle income individuals to have a down payment or meet the requirements for a conventional loan

47
Q

Mortgage payment

A

Due at the end of the month
Positive PV
I
Periods
N
Remember: Solve for payment
1-input

48
Q

Lease vs own

A

Lower years, consider leasing due to cost of owning

49
Q

Client wants to sell a house at a loss

A

Consider keeping it until it recovers

50
Q

Pro forma statements

A

Future financial statements are expected results for the next year or longer

51
Q

Through to recovery

A

Auto sales/manufacturing historically lead the business cycle to expansion

52
Q

Defensive industries

A

Like public utilities and pharmaceuticals are defensive and have little impact with business cycles

53
Q

Commodities

A

Like gold are an inflation hedge
Inflation typically happens at the peak of a business cycle

54
Q

Not researching in a security

A

Negligence leads to unintentional tort and is a violation of the fiduciary duty

55
Q

Elderly client looking for fixed income and yield curve is declining

A

Lock in long term bond in case in interest rates continue to increase

56
Q

PITI

A

Mortgage+home insurance+taxes/All gross income (don’t subtract retirement plan contributions)

57
Q

Emergency fund

A

-RTFQ
-If someone is having a kid perhaps 6 months is needed depending on their work
-fixed and variable expenses, no taxes

58
Q

Payment to UTMA

A

Leaves parents/grandparents ownership and is owned by the child
Reduces net worth

59
Q

Answers on test

A

Must relate to the question ie rating when talking about provisions, options, and features

60
Q

Pure life annuities are

A

Pure life- payments until death
A fixed annuity can lose most of it’s purchasing power in 30-40 years
Removed from estate
No beneficiary payout

61
Q

What is a pension max

A

Take full pension and supplement with life insurance PV of what is needed with a discount rate

62
Q

Wording like “attempt to cope with inflation” and “keep up with market conditions”

A

Variable annuity is usually the correct choice in a suitability question

63
Q

Exclusion ration and inclusion ratio

A

Investment/expected return=exclusion

1-exclusion=inclusion

64
Q

An annuity for an entity receives payments

A

The income is treated as ordinary income the year it is received, no deferral

65
Q

Corp owns an annuity for an employee

A

They are charged interest for the year
And can claim an ordinary loss

66
Q

Sole proprietor and partnership have conduit income and losses that filed on schedule

A

C

67
Q

An LLC can be classified as a partnership or a corporation. When is a llc classified as a partnership

A

When it has no more than two of the following:
Centralization of management
Continuity of life
Limited liability
Free transferability of interests

68
Q

The LLC governance is controlled by what?

A

A contract that controls ownership interest, the distribution of funds, capital structure

69
Q

Dividend received deduction when a US corporation invests in another US corporation

A

50% of dividend may be excluded from tax if less than 20% of the company is owned by the purchasing corporation

65% exclusion is they own 20-80%
100% exclusion if ownership is greater than 80%

70
Q

Section 1244 qualified small business stock details

A

Can turn a capital loss of $100k and turn that into $100k ordinary loss
Still get $3000 of current year capital loss and the rest moves forward as a carry forward capital loss

71
Q

Personal service corporation (PSC) is a negative. Firms that may be considered HALE Health (doctors, dentist), A accounting acting, architecture, Law, Engineering may face what

A

Be considered a corporation paying a flat 21%, losing the advantage of a separate tax entity. They do not get the dividend deduction advantage

72
Q

Subchapter S Corporation breakdown

A

Elects a special tax treatment
Conduit for income,deductions, and tax credits
Becomes an S corp by UNANIMOUS election of its shareholders
Losses status immediately if it lost it’s eligibility
File taxes on 1120s

73
Q

S corp eligibility

A

Limited to 100 shareholders
Can only issue one single class of common shares but can be voting or non-voting shares
Only individuals, estates and certain trusts can be shareholders
Only available for us companies and us citizens or permanent resident aliens

74
Q

Advantages of S corporations

A

Limited liability
Conduit-pass through income or losses to owner but limited to basis
Basis = cash plus direct loans made by the shareholder to the corporation

75
Q

Disadvantage of S corp

A

Corporate formalities
Sale of stock is limited by eligibility standards

76
Q

Limited partnership details

A

Must have a least one general partner
Limited partners are liable only up to their basis
Limited partner is restricted to passive investor
If a limited partner is an active participant then they forfeit limited liability for partnership debt

77
Q

Business organization chart

A
78
Q

A partnership must file

A

Form 1065 for information purposes only
Each partner must file income or loss on form k1
Partnership losses are deductible up to basis, cash, direct loans from partner and loans to partnership

79
Q

A corp bank loans an S corp funds but requests a personal guarantee from an owner on the loans

A

This does not increase basis. Only personal loans to the business increases basis

80
Q

LLC taxable treatment

A

If partnership, only an information return is filed. The tax will pass through to the individual members
If the entity is a corporation, the business is a taxable entity and normally files form 1120 or 1120s

81
Q

What is corporate accumulated earning tax

A

Unless exempt, a corporation that retains it’s earnings will be penalized with a tax equal to 20% of its accumulated taxable income
A regular corporation can retain up to $250k ($150k personal service corporation) without establishing a business need. A bona fide business need allows corporations to avoid this tax
Purpose is to coerce corporations to pay dividends

82
Q

Accumulated earnings is from prior year and current year. If over threshold then what?

A

Taxable at 20%

83
Q

Conduit entities enjoy what tax benefit over corporations regarding dividend payments?

A

Double taxation

84
Q

On what tax form is a S corp distributions normally completed on?

A

K1 of 1120s

K1 of 1041 is on trust and estate
K1 of the 1065 is for partnerships
1099 is for self employment

85
Q

Summary of tax forms used by different businesses

A
86
Q

When speaking to conduit losses which structure is better LLC, S or C

A

LLC allows for pass through losses
S corp is limited to the amount contributed as basis
C corp will not allow passthrough losses

CFP Flash Cards (12 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions