Download CFP Exam Practice Questions With 100% Correct And Verified Answers and more Exams Advanced Education in PDF only on Docsity! CFP Exam Practice Questions With 100% Correct And Verified Answers Stafford Loans are administered by: A) Private Loan Administration B) Federal Family Education Loan Program C) Parent loans to undergraduate students D) Federal assistance loan program - Correct Answer-B Perkins loans - Correct Answer-Low-interest federal student loans for undergraduate and graduate students distributed on the basis financial need. Are Parent Loans to Undergraduate Students (PLUS) available to both full and part time students? - Correct Answer-No, only available to full time students Perfect elasticity results in a ______ demand curve, perfect inelasticity results in a _____ demand curve A) vertical, horizontal B) horizontal, vertical C) Diagonal, horizontal D) Vertical, diagonal - Correct Answer-B, Horizontal, vertical Money in a coverdell savings account must be used by the time beneficiary is ____years of age - Correct Answer-30 A Change in quantity supplied is identified bu which of the following? A) Shifting the demand curve B) Shifting the supply Curve C) Movement along the supply curve D) Movement along the demand curve - Correct Answer-C- This is the willingness to offer the same product at different prices. If an RIA has betwen _____ and ____ of assets under management, the IRA may register with either the applicable states where the RIA maintains clients, or the SEC A) 10MM & 100MM B) 25MM and 100MM C) 50MM and 150MM D) 100MM and 200MM - Correct Answer-B According to the principle of _______ a CFP Board designee shall enter into a financial planning engagement only when the relationship is warranted based on the individual needs and objectives A) Integrity B) Fairness C) Competence D) Diligence - Correct Answer-D Which of the following are among the economic goals of the Federal Reserve and the US Treasury? 1) Full Employment 2) Stable Prices 3) Economic Growth 4) Decrease Governmental Spending A) 1 and 4 B) 3 and 4 C) 1, 2, and 3 D) All of the Above - Correct Answer-C Monetary policy refers to actions taken by the ______ to control the money supply, often by targeting a specific rate of interest A) US Treasury B) Federal Reserve C) Executive Branch D) US Secretary of the Treasury - Correct Answer-B) Federal Reserve Monetary policy is carried out through all but which of the following methods? A) Taxation B) Open market operations C) Changing the reserve requirements D) Changing the discount rate - Correct Answer-A) Taxation A recession is a decline in real GDP for ______ or more consecutive quarters, A depression is a decline in real GDP for ____ or more consecutive quarters a) 2,4 b) 3,6 c) 2,6 d) 4,6 - Correct Answer-C) 2,6 Gross Domestic Product (GDP) = C+I+G+E. The variables C, I, G and E stand for which of the following 1) C= personal consumption 2) I= Issuance of government bonds 3) G= Government consumption 4) E = Exports - Correct Answer-B) GDP = C+I+G+E C= personal consumption I= gross private domestic investment G= government spending E=Net exports D) The insurance company will pay only the cumulative premiums minus interest earned - Correct Answer-C viatical statement - Correct Answer-A process that allows patients with terminal illness to sell their life insurance policies to settlement companies before death and receive payment for a percentage of the policy's face value. If dividends distributed from a life insurance policy exceed the premium paid to date, how are they taxed? A) Ordinary income B) Non-taxable because they are a return of premium C) Dividends are taxed as long term capital gains D) Non-taxable until the the policy is surrendered - Correct Answer-A MECs - Correct Answer-A modified endowment contract is a cash value life insurance contract in the United States where the premiums paid have exceeded the amount allowed to keep the full tax treatment of a cash value life insurance policy Partial loans and surrenders of MECs are taxed on a ____basis. Partial loans and surrenders of non-MECs are taxed on a ____ basis A) FIFO, LIFO B) LIFO, FIFO C) LIFO, LIFO D) FIFO, FIFO - Correct Answer-B How can a life insurance policy deemed to be an MEC be converted into a non MEC A) Satisfy the guideline and premium corridor test B) Satisfy the seven-pay test C) Petition the IRS for a private letter ruling D) Once a life insurance policy becomes an MEC, there is no way to reverse the tax treatment - Correct Answer-D For estimated tax payments, what is the penalty imposed on a self-employed taxpayer who did not have any income tax liability for the preceding year, but failed to withhold $10k in tax payments in the current year? A) $0 Penalty B) $1000 Penalty C) $2000 Penalty D) Penalty Depends on Income Tax Bracket - Correct Answer-A What are the parameters for a taxpayer's ability to deduct moving expenses when moving locations to a new job? - Correct Answer-The tax cuts and jobs act removed this expense deduction, and employers must include moving expense reimbursements as taxable income in employee wages What is the primary source of tax information, and what are some secondary? - Correct Answer-Primary is Internal Revenue Code, Secondary are books, newsletters, articles etc. Which are true: (1) A refundable tax credit cannot reduce a taxpayers' income tax liability to below zero (2) A non-refundable tax credit can reduce a taxpayer's income tax liability below zero. A) 1 only B) 2 only C) None of the above D) All of the above - Correct Answer-C What is an example of above the line deductions that may be claimed without a taxpayer itemizing deductions? - Correct Answer-Capital losses, deductible traditional IRA contributions, ordinary and necessary business expenses, health savings account contributions. above the line vs below the line deductions - Correct Answer-The line, in a sense, is your adjusted gross income (AGI), on which your taxes are largely calculated. Above- the-line deductions are taken before you arrive at your final AGI; they appear either as subtractions from income items or as explicit deductions on your 1040 and help you actually arrive at your AGI. Below-the-line deductions are taken after you have determined your AGI and can reduce your taxable income further. To claim a dependency tax exemption, all but which of the following tests must be met? A) Support test B) Age Test C) Member of household test D) Gross income test - Correct Answer-B Which of the following professionals is not permitted to represent a taxpayer when audited by the IRS? A) CPA B) Enrolled actuary C) CFP D) Enrolled agent - Correct Answer-C Non-business bad debts are deductible as _____ on IRS form 8949. The amount deductible is limited to the taxpayer's basis in the debt A) Long term capital losses B) Short term capital losses C) Passive losses D) Portfolio losses - Correct Answer-B All but which of the following are characteristics of a sole proprietorship? A) Simplest form of business entity B) No formal legal requirements C) Lack of continuity of business life D) Limited liability for the owner - Correct Answer-B The amount of section 1244 stock that can be deducted as an ordinary loss is limited to how much per year? (Pick 2) (1) $50k if single (2) $50k if filing joint (3) $100k if single (4) $100k if filing joint - Correct Answer-1 and 4 Which IRS ax form serves as an informational return used to report income gains, losses, deductions, and credits from the operation of a partnership A) IRS form 1065 B) IRS form 1060 C) IRS form 1040 D) IRS form 706 - Correct Answer-A Does an S corp need to be domestic, and do shareholders need to be US residents? Which or both true? - Correct Answer-Both How do you determine cost basis of an asset acquired at an arm's length from a non- related party? - Correct Answer-Cost plus expenses of a sale, such as taxes paid, installation, costs, freight, and commissions incurred Amortization, Depreciation, or Depletion: The process by which the tax basis of natural resources is recovered - Correct Answer- Depletion Amortization, Depreciation, or Depletion: The process by which the tax basis of intangible assets is recovered - Correct Answer- Amortization Amortization, Depreciation, or Depletion: The process by which the tax basis of tangible assets is recovered - Correct Answer- Depreciation When you sell your house, how long do you need to live there to qualify for section 121 exclusion? - Correct Answer-IRC section 121 allows a taxpayer to exclude up to $250,000 ($500,000 for certain taxpayers who file a joint return) of the gain from the sale (or exchange) of property owned and used as a principal residence for at least two of the five years before the sale.