AGLS 435 Exam 2 Study Materialt With
Complete Solutions
Tracy and Brett are married.
Their current assets $9,243
Their current liabilities $6,921
Their monthly non-discretionary expenses $4,693
Their annual combined income $70,000
Their annual debt payments (excluding monthly housing costs) $22,084
Assume for this question only that Tracy and Brett's monthly housing costs (P&I&T&I)
are $1,500.
Which of the following lender thresholds will Tracy and Brett meet?
The 28% benchmark.
The 36% benchmark.
Both benchmarks.
Neither benchmark - ANSWER The 28% benchmark
$1,500 ÷ ($70,000 ÷ 12) = 25.7;
($1,500 + ($22,084 ÷12) ÷ ($70,000 ÷12) = 57.2
Your client, Tom, age 45, is currently making $145,000. You have determined that his
wage replacement ratio is 80%. You expect inflation to average around 3% for Tom's
entire life expectancy. Tom expects a 9% return on his investments and plans to retire at
age 64, possibly living to age 90. He expects he will receive about $12,000 per year from
Social Security in retirement. Calculate Tom's first year retirement needs at age 64. -
ANSWER $182,365
Byron and Mandy are married and have a net worth of $20,000 and total assets of
$150,000. If their revolving credit and unpaid bills total $8,000, how much are their total
,liabilities?
$122,000.
$130,000.
$138,000.
$150,000. - ANSWER $130,000
Assets - Liabilities = Net Worth ÷ ($150,000 - $20,000 = $130,000)
Which of the following statements is/are correct?
1. The principal but not the interest to be paid this year on a 30-year mortgage is
properly classified on the Statement of Financial Position as a current liability.
2. A CD with a maturity of 9-months is classified as an investment asset on the
Statement of Financial Position.
1 only
2 only
Both 1 and 2
Neither 1 nor 2 - ANSWER 1 only
The current portion of long-term debt (principal only) is classified as a current liability. A
CD due in 12 months or less is classified as cash and cash equivalents not an investment
asset.
The estimated value of a real estate asset in a financial statement should be based upon
the:
Income tax basis of the asset, after adjusting straight line and accelerated depreciation.
The client's estimate of current value.
,Current replacement value of the asset.
The value that a well-informed buyer is willing to accept from a well-informed seller
where neither is compelled to buy or sell. - ANSWER The value that a well-informed
buyer is willing to accept from a well-informed seller where neither is compelled to buy
or sell.
The question is what values should be used in preparation of a personal financial
statement. The answer is fair market value (FMV) and option d is the definition of FMV.
The balance sheet equation is:
Total Assets ÷ Total Liabilities = Net Worth.
b. Total Assets x Total Liabilities = Net Worth.
c. Total Assets - Total Liabilities = Net Worth.
d. Total Assets + Total Liabilities = Net Worth. - ANSWER c. Total Assets - Total
Liabilities = Net Worth.
Samantha has the following transactions:
o She purchases $5,000 worth of a mutual fund with cash from her savings account.
o She spends $6,000 on a vacation with cash from her money market account
o She spends $10,000 on new furniture, and uses her credit card to make the purchase.
$21,000 decrease.
$6,000 decrease.
$15,000 increase.
$6,000 increase. - ANSWER $6,000 decrease
Transactions 1 and 3 were net washes (she was simply changing the nature of the
assets). Samantha traded savings for a mutual fund, and obtained furniture by incurring
a liability. Transaction 2 reduced her net worth, and there was no corresponding
, financial gain.
John and Mary, both 44 years old, are married and have one child, age 10. They plan to
pay for his college at an in-state university from age 18 to 23 and they would like to
retire at age 62. They have provided the following financial data.
Joint employment income $200,000John's 401(k) plan contributions $16,500
Mary's IRA contributions $3,000
John's 401(k) plan employer match $5,000
Annual gifts from John's parents $10,000
Total Investment Assets $380,000
Total Cash and Cash Equivalents $100,000
From the goals and data given, which of the following statements is/are correct? (Do not
make assumptions that are not stated)
1. John and Mary's investment assets to gross pay ratio is adequate for their age.
2. John and Mary's savings rate is appropriate for their goals.
1 only.
2 only.
Both 1 and 2.
Neither 1 nor 2. - ANSWER 2 only.
The investment assets to gross pay ratio is $480,000 ÷ $200,000 = 2.4 times which is not
adequate for persons age 45.
Their savings rate is $24,500 ÷ $200,000 = 12.25% and appears adequate for both the
retirement and the education goals.
Mike Smith has the following financial data.
Complete Solutions
Tracy and Brett are married.
Their current assets $9,243
Their current liabilities $6,921
Their monthly non-discretionary expenses $4,693
Their annual combined income $70,000
Their annual debt payments (excluding monthly housing costs) $22,084
Assume for this question only that Tracy and Brett's monthly housing costs (P&I&T&I)
are $1,500.
Which of the following lender thresholds will Tracy and Brett meet?
The 28% benchmark.
The 36% benchmark.
Both benchmarks.
Neither benchmark - ANSWER The 28% benchmark
$1,500 ÷ ($70,000 ÷ 12) = 25.7;
($1,500 + ($22,084 ÷12) ÷ ($70,000 ÷12) = 57.2
Your client, Tom, age 45, is currently making $145,000. You have determined that his
wage replacement ratio is 80%. You expect inflation to average around 3% for Tom's
entire life expectancy. Tom expects a 9% return on his investments and plans to retire at
age 64, possibly living to age 90. He expects he will receive about $12,000 per year from
Social Security in retirement. Calculate Tom's first year retirement needs at age 64. -
ANSWER $182,365
Byron and Mandy are married and have a net worth of $20,000 and total assets of
$150,000. If their revolving credit and unpaid bills total $8,000, how much are their total
,liabilities?
$122,000.
$130,000.
$138,000.
$150,000. - ANSWER $130,000
Assets - Liabilities = Net Worth ÷ ($150,000 - $20,000 = $130,000)
Which of the following statements is/are correct?
1. The principal but not the interest to be paid this year on a 30-year mortgage is
properly classified on the Statement of Financial Position as a current liability.
2. A CD with a maturity of 9-months is classified as an investment asset on the
Statement of Financial Position.
1 only
2 only
Both 1 and 2
Neither 1 nor 2 - ANSWER 1 only
The current portion of long-term debt (principal only) is classified as a current liability. A
CD due in 12 months or less is classified as cash and cash equivalents not an investment
asset.
The estimated value of a real estate asset in a financial statement should be based upon
the:
Income tax basis of the asset, after adjusting straight line and accelerated depreciation.
The client's estimate of current value.
,Current replacement value of the asset.
The value that a well-informed buyer is willing to accept from a well-informed seller
where neither is compelled to buy or sell. - ANSWER The value that a well-informed
buyer is willing to accept from a well-informed seller where neither is compelled to buy
or sell.
The question is what values should be used in preparation of a personal financial
statement. The answer is fair market value (FMV) and option d is the definition of FMV.
The balance sheet equation is:
Total Assets ÷ Total Liabilities = Net Worth.
b. Total Assets x Total Liabilities = Net Worth.
c. Total Assets - Total Liabilities = Net Worth.
d. Total Assets + Total Liabilities = Net Worth. - ANSWER c. Total Assets - Total
Liabilities = Net Worth.
Samantha has the following transactions:
o She purchases $5,000 worth of a mutual fund with cash from her savings account.
o She spends $6,000 on a vacation with cash from her money market account
o She spends $10,000 on new furniture, and uses her credit card to make the purchase.
$21,000 decrease.
$6,000 decrease.
$15,000 increase.
$6,000 increase. - ANSWER $6,000 decrease
Transactions 1 and 3 were net washes (she was simply changing the nature of the
assets). Samantha traded savings for a mutual fund, and obtained furniture by incurring
a liability. Transaction 2 reduced her net worth, and there was no corresponding
, financial gain.
John and Mary, both 44 years old, are married and have one child, age 10. They plan to
pay for his college at an in-state university from age 18 to 23 and they would like to
retire at age 62. They have provided the following financial data.
Joint employment income $200,000John's 401(k) plan contributions $16,500
Mary's IRA contributions $3,000
John's 401(k) plan employer match $5,000
Annual gifts from John's parents $10,000
Total Investment Assets $380,000
Total Cash and Cash Equivalents $100,000
From the goals and data given, which of the following statements is/are correct? (Do not
make assumptions that are not stated)
1. John and Mary's investment assets to gross pay ratio is adequate for their age.
2. John and Mary's savings rate is appropriate for their goals.
1 only.
2 only.
Both 1 and 2.
Neither 1 nor 2. - ANSWER 2 only.
The investment assets to gross pay ratio is $480,000 ÷ $200,000 = 2.4 times which is not
adequate for persons age 45.
Their savings rate is $24,500 ÷ $200,000 = 12.25% and appears adequate for both the
retirement and the education goals.
Mike Smith has the following financial data.
