Dave and Sharon Sampson are assessing the amount of health insurance and disability income insurance they have. The Sampsons’ health insurance is provided by a health maintenance organization (HMO). Recently, Dave and Sharon have heard about preferred provider organizations (PPOs) and are wondering whether they should switch to a PPO. Upon hearing that PPOs are more expensive than HMOs, Dave and Sharon are hesitant to switch, but they have not yet made up their minds. Dave and Sharon are both happy with their primary care physician and any specialists they need to consult under their HMO plan. Dave and Sharon currently do not have disability income insurance because they do not believe that they are at risk of becoming disabled. Recall from Chapter 2 that Dave and Sharon have about $3,400 a month in expenses, none of which are work related. Their net cash flow in recent months is about $600 a month, but they are attempting to save that money. Dave’s employer provides $200 in disability insurance coverage. The Sampsons have also recently heard about longterm care insurance and are wondering whether they should purchase this type of insurance. Go to the worksheets at the end of this chapter to continue this case. What are your disability insurance needs? What amount of additional coverage, if any, do you require?
> What information is included in a loan contract? How is the amount of the loan determined?
> What information must borrowers supply to lenders in the loan application process? Why is this information important to lenders?
> What does it mean if a loan is amortized? What do the loan payments represent?
> List some possible sources of personal loans. What precautions should be taken with loans from family members or friends?
> What are some viable alternatives to payday loans?
> Noel has a 15% marginal tax rate. If he pays $1,400 in interest on a home equity loan in the first year, what are his tax savings?
> Refer to question 8. What will Mary and Marty’s credit limit be if the bank uses the market value of equity to determine their credit limit and will loan 70% of the equity? Data from Question 8: Mary and Marty are interested in obtaining a home equity
> Describe the nonforfeiture and loan clauses of whole life insurance policies.
> Mary and Marty are interested in obtaining a home equity line of credit. They purchased their house five years ago for $125,000, and it now has a market value of $156,000. Originally, Mary and Marty paid $25,000 down on the house and took out a $100,000
> Tracy is borrowing $8,000 on a six-year, 11%, add-on interest loan. What will Tracy’s monthly payments be?
> Susan recently quit working for a local firm and has yet to find a new job. She knows she can maintain her health insurance from her old employer due to COBRA. How much will it likely cost her for health insurance if she previously paid $100 per month an
> Christine’s total monthly expenses typically amount to $1,800. About $50 of these expenses are work related. Christine’s employer provides disability insurance coverage of $500 per month. How much individual disability insurance should Christine purchase
> Pete’s health insurance policy specifies that he should pay 30% of expenses associated with a long-term illness, and he has a stop loss provision of $35,000 in his policy. If Pete incurs expenses of $70,000, how much would he owe?
> A PPO uses a discount on charge arrangement. Marie incurred total charges by a hospital of $20,000, and the percentage paid to the provider is 70%. Marie’s contract with the PPO specifies her copay as 20%. How much does Marie have to pay?
> When the Sampsons purchased a home, they obtained a 30-year mortgage with a fixed interest rate of 8.6%. Their monthly mortgage payment (excluding property taxes and insurance) is about $700 per month. Today, they could obtain a 30-year mortgage with an
> As the next step in reviewing their finances, the Sampsons are assessing their insurance needs related to their vehicles and home. They indicated the amount of money they spend on insurance on their personal balance sheet in Chapter 2. They currently ha
> As the next step in reviewing their finances, the Sampsons are assessing their insurance needs related to their vehicles and home. They indicated the amount of money they spend on insurance on their personal balance sheet in Chapter 2. They currently ha
> What do the terms round lot and odd lot mean in stock transactions?
> What is whole life insurance? What benefit does it provide that term life insurance does not?
> Why should young people have investments in stocks as part of their portfolio?
> What factors should you consider when selecting which stockbroker to use?
> When performing an economic analysis of stocks, what economic factors are most closely watched?
> What is a balloon payment mortgage? When is this type of mortgage useful?
> What is an escrow account? How do escrow accounts help protect the lender?
> What is an FHA loan? How does the FHA or VA help lower-income individuals buy homes?
> What is a home inspection? Why is it important for you to have a home inspected before purchase?
> What is a Qualified Mortgage?
> What are some of the risks associated with buying a home?
> What is private mortgage insurance? How does it impact the cost of your mortgage?
> Briefly describe some of the term insurance options
> Explain how a weak economy affects the values of homes.
> What is mortgage refinancing? Are there any disadvantages to refinancing?
> Describe the features of graduated payment and balloon payment mortgages.
> Describe some of the costs of buying a home. Are there potential tax savings associated with buying a home?
> What are the costs of renting a home?
> Discuss the characteristics of an adjustable-rate mortgage. What influences your choice of a fixed- or adjustable-rate mortgage?
> List the three things that determine the amount of the monthly mortgage payment. Explain how each affects the payment.
> Describe the characteristics of a fixed-rate mortgage. Why do certain homeowners prefer a fixed-rate mortgage to an adjustable-rate mortgage?
> What are closing costs? List and briefly describe the different closing costs you might incur when applying for a mortgage.
> How do lenders protect their interest in a home? Describe two governmentbacked home loan programs.
> What is term insurance? What factors determine the premium for term insurance? What is decreasing-term insurance?
> Why does the value of a home depend on the demand for homes? What factors influence the demand for homes?
> Once you have reduced your list of three or four homes down to one home, what is your next step? Should you offer the price the seller is asking? Describe how you would conduct a market analysis of the home.
> What is the main factor in determining a home’s resale value? How can you predict a home’s resale value? Who pays commissions when a home is sold?
> Why do insurance costs and taxes vary among homes?
> How do price, convenience of the location, and maintenance affect your home buying decisions?
> What should you consider when determining an affordable down payment and monthly mortgage payments?
> What is your first task when considering buying a home? Why is this step important? How can a real estate broker help you?
> Dave and Sharon Sampson are assessing the amount of health insurance and disability income insurance they have. The Sampsons’ health insurance is provided by a health maintenance organization (HMO). Recently, Dave and Sharon have heard about preferred p
> Dave and Sharon Sampson are assessing the amount of health insurance and disability income insurance they have. The Sampsons’ health insurance is provided by a health maintenance organization (HMO). Recently, Dave and Sharon have heard about preferred p
> The Sampsons have one remaining insurance need: life insurance. They have decided to purchase term life insurance. They want a life insurance policy that will provide for the family in the event of Dave’s death because he is the major b
> What is the purpose of disability income insurance? Why might younger individuals consider purchasing disability insurance?
> What is Medigap insurance?
> What is a high deductible health plan? How is this type of plan related to an HSA?
> Vera is an 85yearold widow and retiree from a large corporation. Her former employer recently changed the health care coverage for retirees to an HMO. Vera is having difficulty with her knees and has requested a referral to an orthopedist. After orderi
> Morris will start investing $1,500 a year in stocks. He feels he can average a 12% return. If he follows this plan, how much will he accumulate in 5 years? In 10 years? In 20 years?
> Floyd wants to invest the $15,000 he received from his grandfather’s estate. He wants to use the money to finance his education when he pursues his doctorate in five years. What amount will he have in five years if he earns a 9% return? If he receives a
> Dawn decides to invest $2,000 each year in stock at the end of each of the next five years. She believes she can earn a 9% return over that time period. How much will Dawn’s investment be worth at the end of five years?
> Tammy has $3,500 that she wants to invest in stock. She believes she can earn a 12% annual return. What would be the value of Tammy’s investment in 10 years if she is able to achieve her goal?
> Emma bought a stock a year ago for $53 per share. She received no dividends on the stock and sold the stock today for $38 per share. What is Emma’s return on the stock?
> Joel (from Problem 1) is in the 25% tax bracket. What amount of taxes will he pay on his capital gain if he held the stock for less than a year? Data from Problem 1: Joel purchased 100 shares of stock for $20 per share. During the year, he received di
> Recall that the Sampsons have a goal of saving about $300 per month ($3,600 per year) for their children’s college education. They want to estimate how this money would grow over time if they invest it in stock. Dave and Sharon have nev
> List the information provided in corporate bond quotations.
> Wes acquired a mineral interest during the year for $10 million. A geological survey estimated that 250,000 tons of the mineral remained in the deposit. During the year, 80,000 tons were mined, and 45,000 tons were sold for $12 million. Other related exp
> Ella has $105,000 of losses from a real estate rental activity in which she actively participates. She has other rent income of $25,000 and other passive income of $32,000. Her AGI before considering these items of income and loss is $95,000. How much r
> On June 5, 2014, Dan purchased and placed in service a 7-year class asset costing $550,000. Determine the maximum deductions that Dan can claim with respect to this asset in 2014 and 2015.
> Mable and Jack file a joint return. For the current year, they had the following items: Salaries………………………………………………………………………………….$120,000 Loss on sale of § 1244 stock acquired two years ago…………………….105,000 Gain on sale of § 1244 stock acquired six months
> Constanza, who is single, sells her current personal residence (adjusted basis of $165,000) for $450,000. She has owned and lived in the house for 30 years. Her selling expenses are $22,500. What is Constanza’s realized and recognized gain?
> Lucy sells her partnership interest, a passive activity, with an adjusted basis of $305,000 for $330,000. In addition, she has current and suspended losses of $28,000 associated with the partnership and has no other passive activities. Calculate Lucy’s t
> In the current year, Ed invests $30,000 in an oil partnership. He has taxable income for the current year of $2,000 from the oil partnership and withdraws $10,000. What is Ed’s at-risk amount at the end of the year?
> Arianna’s personal residence has an adjusted basis of $230,000 and a fair market value of $210,000. Arianna converts the personal residence to rental property. What is Arianna’s gain basis? What is her loss basis?
> Lisa sells business property with an adjusted basis of $130,000 to her son, Alfred, for its fair market value of $100,000. a. What is Lisa’s realized and recognized gain or loss? b. What is Alfred’s recognized gain or loss if he subsequently sells the pr
> Sebastian purchases two pieces of equipment for $100,000. Appraisals of the equipment indicate that the fair market value of the first piece of equipment is $72,000 and that of the second piece of equipment is $108,000. What is Sebastian’s basis in these
> A business building on which straight-line depreciation of $13,000 was taken is sold on the installment basis for $100,000 with $20,000 down and four yearly installments of $20,000 plus interest. The adjusted basis for the building is $35,000
> Rose dies with passive activity property having an adjusted basis of $65,000, suspended losses of $13,000, and a fair market value at the date of her death of $90,000. Of the $13,000 suspended loss existing at the time of Rose’s death, how much is deduct
> Noah, who has $62,000 of AGI before considering rental activities, has $70,000 of losses from a real estate rental activity in which he actively participates. He also actively participates in another real estate rental activity from which he h
> Rhonda has an adjusted basis and an at-risk amount of $7,500 in a passive activity at the beginning of the year. She also has a suspended passive loss of $1,500 carried over from the prior year. During the current year, she has a loss of $12,000 from the
> Determine the treatment of a loss on rental property under the following facts: Basis ……………………………………….$650,000 FMV before the loss……………………800,000 FMV after the loss……………………..200,000
> Mary’s diamond ring was stolen in 2014. She originally paid $8,000 for the ring, but it was worth considerably more at the time of the theft. Mary filed an insurance claim for the stolen ring, but the claim was denied. Because the insurance claim was den
> On May 9, 2013, Calvin acquired 250 shares of stock in Aero Corporation, a new startup company, for $68,750. Calvin acquired the stock directly from Aero, and it is classified as § 1244 stock (at the time Calvin acquired his stock, the corporation had $9
> Your client is a new partnership, ARP Associates, which is an engineering consulting firm. Generally, ARP bills clients for services at the end of each month. Client billings are about $50,000 each month. On average, it takes 45 days to collect the recei
> Bob owns a collection agency. He purchases uncollected accounts receivable from other businesses at 60% of their face value and then attempts to collect these accounts. During the current year, Bob collected $60,000 on an account with a face value of $80
> In the current year, Abe gives an interest in a passive activity to his daughter, Andrea. The value of the interest at the date of the gift is $25,000, and its adjusted basis to Abe is $13,000. During the time that Abe owned the investment, losses of $3,
> Ida, who has AGI of $80,000 before considering rental activities, is active in three separate real estate rental activities. I da has a marginal tax rate of 28%. She has $12,000 of losses from Activity A, $18,000 of losses from Activity B, and income of
> During the current year, Gene, a CPA, performs services as follows: 1,800 hours in his tax practice and 50 hours in an apartment leasing operation in which he has a 15% interest. Because of his oversight duties, Gene is considered to be an active partic
> Bonnie and Jake (ages 35 and 36, respectively) are married with no dependents and live in Montana (not a community property state). Because Jake has large medical expenses, they seek your advice about filing separately to save taxes. Their income and exp
> You have just met with Scott Myers (603 Pittsfield Drive, Champaign, IL 61821), a successful full-time real estate developer and investor. During your meeting, you discussed his tax situation because you are starting to prepare his current Federal income
> Five years ago, Gerald invested $150,000 in a passive activity, his sole investment venture. On January 1, 2014, his amount at risk in the activity was $30,000. His shares of the income and losses were as follows: Year
> Jonathan, a physician, earns $200,000 from his practice. He also receives $18,000 in dividends and interest from various portfolio investments. During the year, he pays $45,000 to acquire a 20% interest in a partnership that produces a $300,000 loss. Com
> Grace acquired an activity four years ago. The loss from the activity is $50,000 in the current year (at-risk basis of $40,000 as of the beginning of the year). Without considering the loss from the activity, she has gross income
> A number of years ago, Lee acquired a 20% interest in the BlueSky Partner- ship for $60,000. The partnership was profitable through 2014, and Lee’s amount at risk in the partnership interest was $120,000 at the beginning of 2015. BlueSky incurred a loss
> Dr. Randolph, a cash basis taxpayer, knows that he will be in a lower marginal tax bracket next year. To take advantage of the expected decrease in his tax rate, Dr. Randolph instructs his office manager to delay filing the medical insurance claims for s
> The end of the year is approaching, and Maxine has begun to focus on ways of minimizing her income tax liability. Several years ago, she purchased an nvestment in Teal Limited Partnership, which is subject to the at-risk and the pas- sive activity loss r
> Kristin Graf (123 Baskerville Mill Road, Jamison, PA 18929) is trying to decide how to invest a $10,000 inheritance. One option is to make an additional investment in Rocky Road Excursions in which she has an at-risk basis of $0, suspended losses under t
> Rene retired from public accounting after a long and successful career of 45 years. As part of her retirement package, she continues to share in the profits and losses of the firm, albeit at a lower rate than when she was working full- time. Because Rene
> John, an engineer, operates a separate business that he acquired eight years ago. If he participates 85 hours in the business and it incurs a loss of $34,000, under what circumstances can John claim an active loss?
> In the current year, White, Inc., earns $400,000 from operations and receives $36,000 in dividends and interest from various portfolio investments. White also pays $150,000 to acquire a 20% interest in a passive activity that produces a $200,000 loss. a
> Leon sells his interest in a passive activity for $100,000. Determine the tax effect of the sale based on each of the following independent facts: a. Adjusted basis in this investment is $35,000. Losses from prior years that were not deductible due to t
> Sarah has investments in four passive activity partnerships purchased several years ago. Last year, the income and losses were as follows: Activity Income (Loss) A ……………………………………………………..$ 30,000 B …
> Jorge owns two passive investments, Activity A and Activity B. He plans to dispose of Activity A in the current year or next year. Juanita has offered to buy Activity A this year for an amount that would produce a taxable passive gain to Jorge of $115,0
