Question
a)Calculate the following ratios andstate (Yes or No)if they are within prescribed limitsusing Exhibit 2-6and Exhibit 7-6in your bookand : 1) Housing costs as a
a)Calculate the following ratios andstate (Yes or No)if they are within prescribed limitsusing Exhibit 2-6and Exhibit 7-6in your bookand :
1) Housing costs as a % of gross income
2) Total Debt service as a % of gross income
3) Food as a % of after tax income
4) Entertainment as a % of after tax income
5) Clothing as a % of after tax incomeb)
B) Suggest expenditures they can reduceand by how muchso that their cash flow statement has a surplus.
c)What is their credit utilization ratio on their credit card? Is it hurting or helping their credit score?Suggest 2 things they can they do to improve their credit score.
STATEMENT OF CASH FLOW (2019 Expected)
Michael's Salary
$85,000
Investment Income
Interest
$500
Other Income
$600
Total Investment Income
$1,100
TOTAL INCOME
$86,100
Pre Tax Contributions
401(K) Contributions
$4,800
Health insurance premiums
$1,200
TOTAL PRE-TAX REDUCTIONS
$6,000
Taxes*
Federal
$7,025
State
$1,250
TOTAL TAXES
$8,275
Living Expenses
Rent
24000
Food & Outside Meals
12500
Clothing
4500
Child Care
2500
Entertainment & Travel
7650
Utilities & Phone
3600
Auto Maintenance
1500
Church Contributions
500
TOTAL LIVING EXPENSES
56750
TUITION & EDUCATION
12500
Other payments
Car Payment
3400
Car Insurance
1000
Credit Card Payment
600
Student Loan Payment
2400
Total- 7400
TOTAL OUTFLOW
$90,925
NET CASH FLOW
($4,825)
*Michael takes the standard deduction, and child tax credit for his two children
STATEMENT OF FINANCIAL POSITION (Jan 1, 2019)
ASSETS
Joint Checking account
$1,500
Joint Savings account
$1,000
TOTAL LIQUID ASSETS
$2,500
Section 401 (K) Vested Plan*
$43,000
Certificates of deposits (CDs)**
$25,000
TOTAL INVESTMENTS
$68,000
Automobile
$15,000
Jewelry
$13,500
Furniture/Household
$60,000
OTHER PERSONAL ASSETS
$88,500
TOTAL ASSETS
$159,000
LIABILITIES & NET WORTH
Credit Cards***
$5,000
Car Loan
$9,000
TOTAL LIABILITIES
$14,000
GORDON FAMILY NETWORTH
$145,000
TOTAL LIABILITIES & NET WORTH
$159,000
- Michaels 401 (K) is 100% invested in the stock of his company Cornerstone, LLC.
**CDs are earning 2% per year and are for 12 months ending October 2018. They will lose interest earned if they redeem early
***Credit Card APR: 28%. Credit Limit $5000
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Investing All In One
Authors: Eric Tyson
1st Edition
1119376629, 978-1119376620
