Module 2 --

Question 1

This asset would be classified as a cash/cash equivalent on the statement of financial position.

Answer 1

Salaries and wages

Question 2

To still be considered adequate, the highest a front-end debt-to income ratio should be is?

Answer 2

36%

Question 3

What is the most likely source for finding financial information regarding a client’s vested pension benefits?

Answer 3

K-1’s

Question 4

Calculate the savings ratio based on the following financial statement.

INFLOWS                 $120,000
     Gross salaries         1,000
     Dividend income    1,225
     Interest income      2,500
                                     ---------

Payment from trust account $124,725
————–
TOTAL INFLOWS
OUTFLOWS
Savings $7,000
Investments $5,000
Fixed Outflows
Mortgage payments $24,000
Home insurance & taxes 4,100
Auto loan payments 4,800
Insurance premiums 2,125
Total Fixed Outflows $35,025
Variable Outflows
Taxes $20,350
Food 6,500
Transportation 1,550
Clothing/personal 7,525
Entertainment/vac 10,800
Medical/dental care 5,445
Utilities/household 5,555
Miscellaneous 4,625
—————————————————————–
Total Variable Outflows $63,350
—————–
TOTAL OUTFLOWS $105,375
————–
NET INFLOW $19,350

Answer 4

Savings and investments / total income = savings ratio

12,000 / 124,725=0.0962 = 9.62%

Question 5

Education Grant

Answer 5

Money given outright to a student, with no expectation of repayment.

Pell Grant for example.

Question 6

Closely held company.

Answer 6

owner frequently experience the dilution of their shares

Question 7

Fair Billing Act

Answer 7

Credit Cards

Revolving credit errors.

Question 8

Fair Credit Billing Act

Answer 8

Prohibits credit discrimination.

Question 9

Assets Liabilities
Cash/Cash Equivalents Credit car balance $0
Checking account $5,500 Auto loan balance $44,000
Savings account 1,000 Mortgage note balance 50,000
Money market acct 9,500 Total Liabilities $94,00
Life insurance cash val 15,000
Total Cash $31,000
Invested Assets
Stock portfolio $85,000
Mutual funds 13,000
IRA 10,000
401(k) 100,000
Total Invested Assets $208,000
Use Assets
Residence $450,000
Automobiles 85,000
Art collection 9,000
Personal property 90,000
Total Use Assets $634,000

Answer 9

$779,000