MCS 2100 - Exam Review Quizzes
Exam Review - Part 1
2. What are the six steps in the financial planning process? What are the typical activities of each
stage?
1. Develop your financial goals
● Analyze your financial values and attitude toward money
● Analyze your attitude toward money
● Analyze your financial decision-making process
● Doing all of the above will help you differentiate your needs from your wants and will
lead you to a clearer definition of your financial goals
2. Determine your current financial situation
● Prepare a list of current asset and debt balances and amounts spent for various items
3. Identify alternative courses of action
● You can: continue the same course of action, expand the current situation, change the
current situation, or take a new course of action
4. Evaluate alternatives
● Take into consideration your life situation, personal values, and current economic
conditions
5. Create and implement a financial action plan
● Choosing ways to achieve your goals
● You may use financial services to set up a plan of action
6. Re-evaluate and revise the plan
● Regularly assess your financial decisions
● Review your finances at least once a year
● Changing personal, social, and economic factors may require more frequent
assessments
3. What are the two documents? What items are typically included on them? Give some numbers you
should be able to calculate the net worth.
Personal balance sheet
● Liquid assets
● Real estate
● Personal possessions
● Investment assets
● Current and long-term liabilities
● Net worth
Cash flow statement
● Salary
● Fixed and variable expenses
● Allocation of surplus
4. Know how to interpret the ratios and given some numbers, know how to calculate them.
Debt ratio - liabilities divided by net worth
, ● Shows relationship between debt and net worth. For many creditors, 0.5 is the maximum
acceptable limit; a lower debt ratio would be better
Current ratio - liquid assets divided by current liabilities
● For many analysts, a ratio of 2 is considered good; a high current ratio is desirable to have cash
available to pay bills
Liquidity ratio - liquid assets divided by monthly expenses
● Indicates the number of months in which living expenses can be paid if an emergency arises. A
high liquidity ratio is desirable.
Debt-payments ratio - monthly credit payments divided by take-home pay
● Indicates how much of a person’s earnings goes for debt payments (excluding a home
mortgage). Most financial advisors recommend a debt-payment ratio of less than 20 percent.
Savings ratio - amount saved each month divided by gross income
● Financial experts recommend monthly savings of at least 10 percent
5. How are Ontario provincial taxes calculated?
● Taxable income is multiplied by the provincial tax rate
6. Know the four main characteristics of useful financial goals.
● Financial goals should be realistic
● Financial goals should be stated in specific, measurable terms
● Financial goals should have a time frame
● Financial goals should indicate the type of action to be taken
7. How do you calculate the marginal tax rate? The combined MTR? When would you use the MTR?
● MTR - When calculating taxes payable it is the highest tax rate used. For combined MTR
simply add the federal MTR to the provincial MTR. MTR can be used to calculate how much
tax will be due on extra income - employment and investment income. It can also be used to
calculate how much will be saved in taxes if you defer or avoid some taxes.
8. Make sure you understand the two exhibits for calculating taxes. They provide a summary of how to
fill out a tax form.
Step 1: Determining Total Income
● Total Income: employment income, net business income, investment income, taxable capital
gains, and other income
Step 2: Calculating Net Income
● Less: Deductions
● Equals: Net income
Step 3: Calculating Taxable Income
● Less: Other allowable deductions or Losses carried over
● Equals: Taxable income
Step 4: Calculating Federal Taxes Owing
● Federal tax based on tax bracket
Step 5: Calculating Net Federal Tax:
● Less: Tax credits
Exam Review - Part 1
2. What are the six steps in the financial planning process? What are the typical activities of each
stage?
1. Develop your financial goals
● Analyze your financial values and attitude toward money
● Analyze your attitude toward money
● Analyze your financial decision-making process
● Doing all of the above will help you differentiate your needs from your wants and will
lead you to a clearer definition of your financial goals
2. Determine your current financial situation
● Prepare a list of current asset and debt balances and amounts spent for various items
3. Identify alternative courses of action
● You can: continue the same course of action, expand the current situation, change the
current situation, or take a new course of action
4. Evaluate alternatives
● Take into consideration your life situation, personal values, and current economic
conditions
5. Create and implement a financial action plan
● Choosing ways to achieve your goals
● You may use financial services to set up a plan of action
6. Re-evaluate and revise the plan
● Regularly assess your financial decisions
● Review your finances at least once a year
● Changing personal, social, and economic factors may require more frequent
assessments
3. What are the two documents? What items are typically included on them? Give some numbers you
should be able to calculate the net worth.
Personal balance sheet
● Liquid assets
● Real estate
● Personal possessions
● Investment assets
● Current and long-term liabilities
● Net worth
Cash flow statement
● Salary
● Fixed and variable expenses
● Allocation of surplus
4. Know how to interpret the ratios and given some numbers, know how to calculate them.
Debt ratio - liabilities divided by net worth
, ● Shows relationship between debt and net worth. For many creditors, 0.5 is the maximum
acceptable limit; a lower debt ratio would be better
Current ratio - liquid assets divided by current liabilities
● For many analysts, a ratio of 2 is considered good; a high current ratio is desirable to have cash
available to pay bills
Liquidity ratio - liquid assets divided by monthly expenses
● Indicates the number of months in which living expenses can be paid if an emergency arises. A
high liquidity ratio is desirable.
Debt-payments ratio - monthly credit payments divided by take-home pay
● Indicates how much of a person’s earnings goes for debt payments (excluding a home
mortgage). Most financial advisors recommend a debt-payment ratio of less than 20 percent.
Savings ratio - amount saved each month divided by gross income
● Financial experts recommend monthly savings of at least 10 percent
5. How are Ontario provincial taxes calculated?
● Taxable income is multiplied by the provincial tax rate
6. Know the four main characteristics of useful financial goals.
● Financial goals should be realistic
● Financial goals should be stated in specific, measurable terms
● Financial goals should have a time frame
● Financial goals should indicate the type of action to be taken
7. How do you calculate the marginal tax rate? The combined MTR? When would you use the MTR?
● MTR - When calculating taxes payable it is the highest tax rate used. For combined MTR
simply add the federal MTR to the provincial MTR. MTR can be used to calculate how much
tax will be due on extra income - employment and investment income. It can also be used to
calculate how much will be saved in taxes if you defer or avoid some taxes.
8. Make sure you understand the two exhibits for calculating taxes. They provide a summary of how to
fill out a tax form.
Step 1: Determining Total Income
● Total Income: employment income, net business income, investment income, taxable capital
gains, and other income
Step 2: Calculating Net Income
● Less: Deductions
● Equals: Net income
Step 3: Calculating Taxable Income
● Less: Other allowable deductions or Losses carried over
● Equals: Taxable income
Step 4: Calculating Federal Taxes Owing
● Federal tax based on tax bracket
Step 5: Calculating Net Federal Tax:
● Less: Tax credits
