Newlyweds Jamie Lee and Ross have had several milestones in the past year. They are newlyweds, recently purchased their first home and now have twins on the way! Jamie Lee and Ross have to seriously consider their insurance needs. A family, a home and now babies on the way, they need to develop a risk management plan to help them should an unexpected event arise. Current Financial Situation: Assets (Jamie Lee and Ross combined): Checking account: $4,300 Savings Account: $22,200 Emergency Fund savings account: $20,500 IRA balance: $26,000 Car: $10,000 (Jamie Lee) and $18,000 (Ross) Liabilities (Jamie Lee and Ross combined): Student loan balance: $0 Credit Card Balance: $2,000 Car Loans: $6,000 Income: Jamie Lee: $50,000 gross income ($37,500 net income after taxes) Ross: $75,000 gross income ($64,000 net income after taxes) Monthly Expenses (combined): Mortgage: $1,252 Property Taxes and Insurance: $500 Utilities: $195 Food: $400 Gas/Maintenance: $275 Credit Card Payment: $250 Car Loan Payment: $289 Entertainment: $300 Questions: 1. Based on their current life status, what are some of the goals Jamie Lee and Ross should set to achieve when developing their insurance plan? 2. What four questions should Jamie Lee and Ross ask themselves as they develop the risk management plan? 3. Once Jamie Lee and Ross put their insurance plan in to action, what should they do to maintain their plan? 4. Jamie and Ross decided to conduct a check-up on their homeowner’s insurance policy. They noticed that they had omitted covering Jamie Lee’s diamond wedding band set from their policy. What if it got lost or stolen? It was a major purchase and beside the emotional value, the cost to replace the diamond jewelry would be very high. What type of policy should Jamie Lee and Ross consider to cover the diamond wedding rings? 5. Mr. Ferrell, Jamie Lee and Ross’ insurance agent, suggested a flood insurance policy in addition to their regular homeowner’s policy. Jamie Lee and Ross looked quizzically at the agent, as they do not live within two miles of a body of water. What is the basis for Mr. Ferrell’s claim for the necessity of the flood policy? 6. Considering the value of Jamie Lee and Ross’ automobiles, what type of automobile insurance coverage would you suggest for them? 7. What financial strategy would you suggest to Jamie Lee and Ross to enable them to save money on their insurance premiums?
> You and your spouse are in good health and have reasonably secure careers. Each of you makes about $40,000 annually. You own a home with an $80,000 mortgage, and you owe $15,000 on car loans, $5,000 on personal debts, and $4,000 on credit card loans.
> Sophia purchased a variable annuity contract with a $25,000 purchase payment. Surrender charges being with 7 percent in the first year, and decline by 1 percent each year. In addition, Sophia can withdraw 10 percent of her contract value each year wit
> Using the "nonworking" spouse method, what should be the life insurance needs for a family whose youngest child is 5 years old?
> You are a wage earner in a “typical family,” with $40,000 gross annual income. Use the easy method to determine how much insurance you should carry.
> In 2005, Joelle spent $5,000 on her health care. If this amount increased by 6 percent per year, what would be the amount Joelle spent in 2015 for the same health care? (Hint: Use the Time Value of Money Table in the Chapter 1 Appendix, Exhibit 1-A)
> Pam is 31 and recently divorced, with children ages 3 and 6. She earns $40,000 a year as a secretary. Her employer provides her with basic health insurance coverage. She receives child support from the children’s father, but he misses payments often a
> Ronald Roth started his new job as Controller with Aerosystems today. Carol, the employee benefits clerk, has given Ronald a packet that contains information on the company’s health insurance options. Aerosystems offers its employees the choice between
> Ronald Roth started his new job as Controller with Aerosystems today. Carol, the employee benefits clerk, has given Ronald a packet that contains information on the company’s health insurance options. Aerosystems offers its employees the choice between
> Ronald Roth started his new job as Controller with Aerosystems today. Carol, the employee benefits clerk, has given Ronald a packet that contains information on the company’s health insurance options. Aerosystems offers its employees the choice between
> Georgia has a take-home pay of $600 a week. Her disability insurance coverage replaces 70 percent of her earnings after a four-week waiting period. What amount would she receive in disability benefits if an illness kept Georgia off work for 16 weeks?
> Becky’s comprehensive major medical health insurance plan at work has a deductible of $750. The policy pays 85 percent of any amount above the deductible. While on a hiking trip, she contracted a rare bacterial disease. Her medical costs for treatment, i
> As of 2012, per capita spending on health care in the United States was about $9,000. If this amount increased by 7 percent a year, what would be the amount of per capita spending for health care in 8 years?
> The Tucker family has health insurance coverage that pays 80 percent of out-of-hospital expenses after a $500 deductible per person. If one family member has doctor and prescription medication expenses of $1,100, what amount would the insurance pay?
> What amount would a person with actual cash value (ACV) coverage receive for two-year-old furniture destroyed by a fire? The furniture would cost $2,000 to replace today and had an estimated life of five years.
> Most home insurance policies cover jewelry for $1,000 and silverware for $2,500 unless items are covered with additional insurance. If $4,500 worth of jewelry and $6,000 worth of silverware were stolen from a family, what amount of the claim would not b
> You estimate that you can save $3,450 by selling your home yourself rather than using a real estate agent. What would be the future value of that amount if invested for five years at 3 percent?
> How does your age affect the type of investments you choose to obtain your financial goals?
> Calculate the current price for the following bonds.
> Explain what the following bond ratings mean for investors. Aaa BBB CC
> What type of information about bonds is available on the Internet?
> In your own words, describe why corporations sell corporate bonds.
> Calculate the annual interest and the semiannual interest payment for corporate bond issues with a face value of $1,000.
> List the three reasons investors purchase corporate bonds.
> What is the difference between a Treasury bill, a Treasury note, a Treasury bond, and TIPS?
> Explain the difference between a general obligation bond and a revenue bond.
> Using the formula presented in this section, calculate the taxable equivalent yields for the following tax-exempt bonds.
> What are the risks involved when investing in state and local securities?
> Visit the Social Security Administration’s Web page to determine your approximate monthly Social Security disability benefits should you become disabled in the current year. Or call your Social Security office to request the latest edition of Social Sec
> Why should you monitor the value of your investment?
> Why should investors be concerned with asset allocation and the time their investments have to work for them?
> Assume you must choose an investment that will help you obtain your investment goals. Rank the following investments from 1 (low) to 5 (high) and then justify your choice for your investment portfolio. Investment Rank Justification (1 = low; 5= hig
> In your own words, describe each of the four components of the risk factor.
> How do income, growth, and liquidity affect the choice of an investment?
> Why are safety and risk two sides of the same coin?
> What factors should you consider when performing a financial checkup?
> In your own words, describe the time value of money concept and how it affects your investment program.
> How can you obtain the money needed to begin investing?
> What is the difference between an immediate and a deferred annuity?
> Jamie Lee and Ross, happy newlyweds with a new home and twins on the way, are anxiously awaiting their new bundles of joy. Ross was a little nervous, and understandably so, as he quietly wondered if everything will go all right with Jamie’s pregnancy.
> What is an annuity?
> What are fixed and variable annuities?
> As a general rule, are annuities advisable for people in poor health? Why or why not?
> Match the following terms with the appropriate definition: Endowment a. A person named to receive the benefits from an insurance policy. Beneficiary b. Provides coverage for a specific period of time and pays an agreed- upon sum of money to the poli
> What are the various riders in a life insurance policy?
> What is a rider?
> What are the key provisions in a life insurance policy?
> What are the four most common settlement options?
> What factors do you consider in choosing an insurance agent?
> Define the following types of life insurance policies. a. Group life insurance b. Credit life insurance c. Endowment life insurance
> What are the two types of insurance companies?
> What are the four forms of whole life insurance?
> What are the five forms of term insurance?
> For each of the following statements, indicate your response by writing “T” or “F”. a. Stock life insurance companies generally sell participating (or par) policies. b. Mutual life insurance companies specialize in the sale of nonparticipating (nonpar)
> What is life insurance? What is its purpose?
> For each of the following statements, indicate your response by writing “T” or “F”. a. Life insurance is one of the least important and inexpensive purchases. b. A beneficiary is a person named to receive the benefits from the insurance policy c. Life i
> What are the four methods of determining life insurance needs?
> What are various groups doing to curb the high costs of health care?
> What are the reasons for rising health care expenditures?
> What can individuals do to reduce health care costs?
> 1. Using Your Personal Financial Plan Sheet 22, compare the advantages and the disadvantages of renting a home or apartment versus the purchase of a home. 2. Jamie Lee and Ross are estimating that they will be putting $40,000 from their savings as a down
> 1. Based on Mackenzie’s experiences, what benefits and drawbacks are associated with online car buying? 2. What additional actions might Mackenzie consider before buying a motor vehicle? 3. What actions might a car buyer take if a lemon is purchased?
> The company issued 10,000 shares of $1 par common stock for cash of $40 per share. Make the necessary journal entry.
> The manager is entitled to a bonus equal to 5% of her store’s earnings. The difficult part is that calculation of the store’s earnings includes a subtraction for the amount of the bonus. The store’s earnings before the bonus total $200,000. Calculate the
> The company has the following three loans payable scheduled to be repaid in February of next year. As of December 31 of this year, compute (1) Total current liabilities and (2) Total noncurrent liabilities. (a) The company intends to repay Loan A, for
> On January 1, the company purchased investment securities for $1,000. The securities are classified as trading. By December 31, the securities had a fair value of $1,800 but had not yet been sold. Excluding the trading securities, income before taxes for
> Van Etten Company declared and paid a cash dividend of $3.25 per share on its $1 par common stock. Van Etten has 100,000 shares of common stock outstanding and total paid-in capital from common stock of $800,000. As part of the dividend announcement, Van
> MedQuest Enterprises is threatened with bankruptcy due to its inability to meet interest payments and fund requirements to retire $5,000,000 of long-term notes. The notes are all held by Dynasty Insurance Company. In order to prevent bankruptcy, MedQuest
> A machine is purchased at the beginning of 2013 for $38,400. Its estimated life is eight years. Freight costs on the machine are $3,000. Installation costs are $1,600. The machine is estimated to have a residual value of $600 and a useful life of 32,000
> The company has bonds payable with a total face value of $150,000 and a carrying value of $142,000. In addition, unpaid interest on the bonds has been accrued in the amount of $8,000. The lender has agreed to the settlement of the bonds in exchange for 2
> The company has outstanding bonds payable with a total face value of $100,000. On July 1, the company redeemed the bonds by purchasing them on the open market for a total of $102,700. Make the necessary journal entry on the issuer’s books to record the r
> Refer to Practice 14-10. Make the adjusting journal entries for (a) and (b) and the computations for (c) and (d), Assuming that the securities are classified as available for sale. In Practice 14-10 On December 1, the company purchased securities for $3
> On December 1, the company purchased securities for $3,850. On December 31, the company still held the securities. Make the necessary adjusting journal entry to record a change in value of the securities assuming that their December 31 fair value was (a
> Florence Clark purchased a house for $300,000. She paid cash of 10% of the purchase price and signed a mortgage for the remainder. She will repay the mortgage in monthly payments for 30 years, with the first payment to occur in one month. The interest ra
> On January 1, the lessee company signed an operating lease contract. The lease contract calls for $3,000 payments at the end of each year for 10 years. The rate implicit in the lease is 10%. Make the journal entries necessary on the books of the lessee c
> Fredco’s defined benefit pension plan had a PBO of $10,000,000 at the beginning of the year. This was based on a 10% discount rate (obligation discount rate). The fair value of pension plan assets at the beginning of the year was $10,400,000. These asset
> A lease involves payments of $1,000 per month for five years. The payments are made at the end of each month. The lease also involves a guaranteed residual value of $10,000 to be paid at the end of the 5-year period. The fair value of the leased asset is
> On December 31, the company, a lessee, purchased some machinery that it had been leasing under a capital lease arrangement. The leased asset and lease liability were originally recorded at $1,000,000. At the time of the purchase, the accumulated amortiza
> A lease involves payments of $2,000 per month for two years. The payments are made at the end of each month. The lease also involves a guaranteed residual value of $20,000 to be paid at the end of the 2-year period. The appropriate interest rate is 12% c
> The company owns 2,000 shares of Stock A and 6,000 shares of Stock B. The company received dividends of $1.75 per share from Stock A and $0.97 per share from Stock B. The company classifies Stock A as a trading security and Stock B as an available-for-sa
> Identify how each of the following investments in equity securities should be classified by the investor company: Number of Total Shares Shares Owned of Investee Company by Investor Company Outstanding 1,200 10,000 2. 6,000 8,000 3 20,000 55,000
> The company purchased 2,000 shares of equity securities for $27 per share. The shares were purchased as an available-for-sale investment. Make the journal entry necessary to record the purchase.
> The company, based in the United Kingdom, has the following equity accounts: Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000 Asset revaluation reserve . . .
> The company started business on January 1, 2011. Net income and dividends for the first three years of the company’s existence are as follows: The company has some foreign subsidiaries and also maintains a portfolio of available-for-s
> The company arranged a line of credit for $500,000 on January 1. The commitment fee is 0.05% (five one-hundredths of 1%) of the total credit line. In addition, the company must pay interest of 5.9% (compounded annually) on any actual loans acquired under
> Indicate which of the following items are temporary differences and which are nontaxable or nondeductible. For each temporary difference, indicate whether the item considered alone would create a deferred tax asset or a deferred tax liability. (a) Tax de
> Anderson Company paid dividends at the end of each year as follows: 2011, $150,000; 2012, $240,000; and 2013, $560,000. Determine the amount of dividends per share paid on common and preferred stock for each year, assuming independent capital structures
> The records of Burtone Company contain the following cost categories. Burtone manufactures exercise equipment and iron weights. (a) Cost of materials used to repair factory equipment (b) Depreciation on the fleet of salespersons’ cars (c) Cost to purchas
> The board of directors of the company has decided that the interests of the shareholders will be best served if the company is liquidated in an orderly fashion, with the proceeds to be distributed to the shareholders. As the first installment in this liq
> Illinois Wholesale Company has an agreement with its sales manager entitling that individual to 7% of company earnings as a bonus. Company income for the calendar year before bonus and income tax is $350,000. Income tax is 30% of income after bonus. 1. C
> The company has bonds payable with a total face value of $100,000 and a carrying value of $103,000. In addition, unpaid interest on the bonds has been accrued in the amount of $6,000. The lender has agreed to the settlement of the bonds in exchange for l
> Refer to Practice 16-3. Compute the effective tax rate. In Practice 16-3 The company reported pretax financial income in its income statement of $50,000. Among the items included in the computation of pretax financial income were the following: Interes
> Refer to Practice 12-18. Compute the times interest earned ratio. In Practice 12-18 Consider the following information: Short-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> The company manufactures a single product and has decided to adopt the dollar-value LIFO inventory method. The inventory value on that date using the newly adopted dollar-value LIFO method was $100,000. Inventory at year-end prices was $120,000, and the
> The company has one LIFO pool. Information relating to the products in this pool is as follows: Beginning inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 units @ $20 each Purchase, February 12. . . . .
> Total wages and salaries for the month of January were $50,000. Because it is January, no employee has yet reached the FICA tax cap amount, so the full FICA tax percentage is applicable to the entire amount of wages and salaries. The same is true of the
> A building has a cost of $700,000 and accumulated depreciation of $340,000. The building is exchanged for land. Make the necessary journal entry if (1) The land has a market value of $400,000 and (2) The land has a market value of $200,000.
> Refer to Practice 17-17. Prepare the note disclosure necessary to reconcile the beginning balance in the pension fund and the ending balance in the pension fund. In Practice 17-17 On January 1 of Year 1, the company had a projected benefit obligation (P
> Refer to Practice 14-10. Make the adjusting journal entries for (a) and (b) and the computations for (c) and (d), assuming that the securities are accounted for using the equity method. Ignore the impact of the investee company income and dividends. The
> On January 1 of Year 1, the company had a projected benefit obligation (PBO) of $10,000 and a pension fund with a fair value of $9,200. Prior service cost was $2,000; it was being amortized on a straight-line basis over the 5-year average remaining life
> On January 1, the company purchased the rights to a valuable Internet domain name for $250,000. Given current market conditions, the company estimates that these rights have an economic life of four years at which time they will have no residual value. M
