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Banking
Q:
A bank's Report of Condition shows gross loans and leases or $1,500 million. The loan loss allowance for the year is accumulated to $50 million and the bank reports an unearned income amounting to $2 million. The net loans and leases accounted by the banks would be:
A. $1,550 million
B. $1,450 million
C. $1,448 million
D. $1,452 million
E. $1,548 million
Q:
The beginning balance in the allowance for loan loss account for Synopsis Bank is $500 million. The banking firm charges $2 million for provision for loan losses. Synopsis Bank will report:
A. $502 million as adjusted allowance for loan losses.
B. $498 million as noninterest expense.
C. $2 million as allowance for loan losses.
D. $502 million as provision for loan loss expense.
E. $2 million as adjusted allowance for loan losses.
Q:
The available-for-sale securities are shown on the:
A. Report of Condition at book value.
B. Report of Income at fair market value.
C. Report of Condition as a contra asset.
D. Report of Condition at fair market value.
E. Report of Income as an income.
Q:
The largest expense item often observed in the financial statement of the banks is:
A. personnel cost.
B. premises and equipment cost.
C. interest on borrowed funds.
D. provision for loan loss.
E. employee benefits.
Q:
You know the following information about the Taylor National Bank: Given this information, what is the value of this firm's total revenues? A. $1,500B. $2,000C. $2,050D. $1,950E. $1,450
Q:
You know the following information about the Webb State Bank: Given this information, what is the value of this firm's total assets? A. $1,000B. $300C. $800D. $200E. $500
Q:
You know the following information about the Davis National Bank: Given this information, what is the value of this firm's total revenues? A. $800B. $850C. $150D. $950E. $900
Q:
You know the following information about the Miller State Bank: Given this information, what is the value of this firm's total liabilities plus equity? A. $250B. $450C. $150D. $50E. $500
Q:
You know the following information about the Miller State Bank:Given this information, what the value of this firm's undivided profits? A. $50B. $5C. $10D. $40E. $450
Q:
Fee income arising from fiduciary transactions include all of the following except:
A. fees for checking account maintenance.
B. fees for managing and protecting a customer's property.
C. fees for recordkeeping for corporate security.
D. fees for dispersing interest and dividend payments for a corporation.
E. fees for managing corporate and individual retirement plans.
Q:
Which of the following most accurately describes the principal type(s) of bank noninterest income?
A. Fees from fiduciary transactions
B. Fees from deposit transactions
C. Fees from securities transactions
D. Fees from additional noninterest income
E. All of the options are correct.
Q:
FASB Rule 115 focuses primarily on:
A. deposit sources.
B. investments in marketable securities.
C. derivatives trading.
D. loan-loss reserves.
E. hedging activities.
Q:
What financial-service industry category is second to the banking industry in total financial assets held?
A. Mutual funds
B. Thrifts
C. Investment banks
D. Insurance companies
E. Pension funds
Q:
Which of the following assets is the largest asset item on the bank's balance sheet?
A. Securities
B. Cash
C. Loans and leases
D. Bank premises
E. None of the options are correct.
Q:
Which of the following accounts is also called the bank's primary reserves?
A. Cash and deposits due from banks
B. Investment securities
C. Trading account securities
D. Fed funds sold
E. None of the options are correct.
Q:
Which of the following financial statements shows the revenues and expenses of a bank over a set period of time?
A. The Statement of Stockholders Equity
B. The Funds-Flow Statement
C. The Report of Financial Condition
D. The Report of Income
E. None of the options are correct.
Q:
A bank has total interest income of $67 million and total noninterest income of $14 million. This bank has total interest expenses of $35 million and total noninterest expenses (excluding PLL) of $28 million. Its provision for loan losses is $6 million and its taxes are $5. What is this bank's net income?
A. $7
B. -$14
C. $18
D. $32
E. None of the options are correct.
Q:
A bank which starts with ALL of $1.48 million at the beginning of the year, charges off worthless loans of $0.94 million during the year, recovers $0.12 million on loans previously charged off and charges current income for a $1.02 million provision for loan losses, will have an ALL at the end of the year of:
A. $0.66 million.
B. $3.32 million.
C. $1.68 million.
D. $1.28 million.
E. The same amount as at the beginning of the year.
Q:
A bank sells shares of its common stock with a par value of $100 for $200 in the market. Which two accounts on the bank's balance sheet are going to be affected?
A. Retained earnings and surplus accounts
B. Subordinated notes and debentures and commons stock outstanding accounts
C. Retained earnings and common stock outstanding accounts
D. Common stock outstanding and surplus accounts
E. Only the common stock outstanding account
Q:
A bank's temporary lending of excess reserves to other banks is labeled on the balance sheet as:
A. fed funds purchased.
B. fed funds sold.
C. money market deposits.
D. securities purchased for resale.
E. None of the options are correct.
Q:
Large U.S. banks must use which of the methods listed below to determine their provision for loan loss expense?
A. Experience method
B. Reserve method
C. Specific charge-off method
D. Historical cost method
E. None of the options are correct.
Q:
Noninterest revenue sources for a bank are called:
A. commitment fees on loans.
B. fee income.
C. supplemental income.
D. noninterest margin.
E. None of the options are correct.
Q:
The common banking practice of selling those investment securities that have appreciated in order to reap a capital gain and holding onto those securities whose prices have declined is known as:
A. gains trading.
B. performance banking.
C. loss control trading.
D. selective portfolio management.
E. None of the options are correct.
Q:
When a loan is considered uncollectible, the bank's accounting department will write (charge) it off the books by reducing the ______ and the ______ accounts. Which choice below correctly fills in the blanks in the preceding sentence?
A. PLL, gross loans
B. ALL, net loans
C. ALL, gross loans
D. PLL, net loans
E. None of the options are correct.
Q:
Banks depend heavily upon borrowed funds supplied by customers with little owners' capital invested. This means that banks make heavy use of:
A. financial leverage.
B. capital restructuring.
C. operating leverage.
D. margin borrowing.
E. None of the options are correct.
Q:
The use of fixed assets, rather than financial assets, in order to increase the operating earnings is known as:
A. plant and equipment investment.
B. financial leverage.
C. operating leverage.
D. nondeposit capital.
E. None of the options are correct.
Q:
One-time-only transactions that often involve sale of financial assets or real property pledged as collateral behind a loan and upon which the bank has foreclosed, affect a bank's account known as:
A. allowance for loan losses.
B. nonrecurring sales of assets.
C. asset gains or losses.
D. provision for loan and security losses.
E. None of the options are correct.
Q:
Nonperforming loans are credits on which any scheduled loan repayments and interest payments are past due for more than:
A. 30 days.
B. 60 days.
C. 90 days.
D. 180 days.
E. None of the options are correct.
Q:
The account that is built up by annual noncash expense deductions and is subtracted from Gross Loans on the Report of Condition is:
A. unearned income.
B. nonperforming loans.
C. allocated loan risk deductions.
D. allowance for possible loan losses.
E. None of the options are correct.
Q:
___________ is calculated by deducting noninterest expense and provision for loan losses from noninterest income.
A. Net profit margin
B. Net interest income
C. Net income after provision for possible loan losses
D. Income or loss before income taxes
E. Net noninterest income
Q:
When a bank serves as a security dealer for certain kinds of securities (mainly federal, state, and local government obligations) the value of these securities is usually recorded in what account on a bank's Report of Condition?
A. Investment securities
B. Taxable and tax-exempt assets
C. Trading account assets
D. Secondary reserves
E. None of the options are correct.
Q:
A financial institution's bad-debt reserve, as reported on its balance sheet, is called:
A. unearned income or discount.
B. allowance for possible loan losses.
C. intangible assets.
D. customer liability on acceptances.
E. None of the options are correct.
Q:
The noncash expense item on a bank's Report of Income designed to shelter a bank's current earnings from taxes and to help prepare for bad loans is called:
A. short-term debt interest.
B. noninterest expense.
C. provision for taxes.
D. provision for possible loan losses.
E. None of the options are correct.
Q:
An example of a contra-asset account is:
A. loan and lease loss allowance.
B. trading account assets.
C. buildings and equipment.
D. revenue bonds.
E. provision for loan loss.
Q:
Which of the following adjustments are made to gross loans and leases to obtain net loans and leases?
A. Loan and lease loss allowance is added to gross loans.
B. Unearned income is subtracted from gross interest received.
C. Investment income is added to gross interest received.
D. Loan and lease loss allowance and unearned income is subtracted from gross loans.
E. Loan and lease loss allowance is subtracted from gross loans and investment income is added to gross interest received.
Q:
Each of the following typically falls into the category of loans except:
A. real estate.
B. consumer.
C. commercial and industrial (business).
D. agricultural.
E. municipal.
Q:
Banks generate their largest portion of income from:
A. loans.
B. short-term investments.
C. demand deposits.
D. trading account gains & fees.
E. certificates of deposits.
Q:
Each of the following falls into the category of bank assets except:
A. loans.
B. investment securities.
C. demand deposits.
D. cash and due from banks.
E. other assets.
Q:
Financial statements issued by banks and by nonbank financial-service firms look increasingly similar today.
Q:
"Painting the tape" refers to the practice whereby banks understate their nonperforming loans.
Q:
Except for commercial banks, savings & loans and savings banks hold the most deposits.
Q:
Off-balance-sheet items for banks have declined in recent years.
Q:
The Pension Fund industry is now larger than the Mutual Fund industry.
Q:
In looking at comparative balance sheets, it can be seen that large banks rely more heavily on nondeposit borrowings while small banks rely more heavily on deposits.
Q:
The number one source of revenue for a bank based on dollar volume is loan income.
Q:
After the Tax Reform Act of 1986, large banks (>$500 million in assets) were required to use the reserve method of accounting for future loan loss reserves.
Q:
The experience method of accounting for future loan loss reserves allows a bank to deduct from their income statement up to 0.6 percent of their eligible loans.
Q:
Off-balance-sheet items for a bank are fee generating transactions which are not recorded on their balance sheet.
Q:
U.S. banks (especially those with $500 million or more in total assets) are required to file financial statements, audited by an independent public accountant, with their principal federal regulatory agency and with the FDIC.
Q:
Loan-loss reserves set aside to cover a particular loan or loans expected to be a problem or loans that represent above-average risk are known as specific reserves.
Q:
Recoveries on loans previously charged off are added to the Provision for Loan Losses (PLL) account on a bank's income statement.
Q:
The expensing of a worthless loan usually must occur in the year that troubled loans are judged to be worthless.
Q:
Bad loans normally do not affect a bank's current income.
Q:
A bank displaying trading-account securities on its balance sheet is serving as a security dealer and plans to sell those securities before they reach maturity.
Q:
Most banks report securities gains as a component of their total noninterest income.
Q:
In U.S. banking, securities gains are treated as an ordinary income.
Q:
When a loan is classified as nonperforming, any accrued interest recorded on the books, but not actually received, must be deducted from the bank's loan revenues.
Q:
Net loans on a bank's balance sheet are derived by deducting the allowance for loan losses and unearned discounts from gross loans.
Q:
Securities income is a financial output listed on a financial institution's Report of Condition.
Q:
The cost of nondeposit borrowings is a financial input on a bank's income statement or Report of Income.
Q:
Nondeposit borrowings are a financial input on a bank's balance sheet or Report of Condition.
Q:
Loans and leases are financial outputs on a financial institution's balance sheet or Report of Condition.
Q:
On a bank's income statement (Report of Income) deposit costs are financial inputs.
Q:
Checking account maintenance fees and overdraft fees are included in the noninterest income account under _________.
Q:
Fees that arise from a financial firm's trust activities, fees for managing a corporation's interest and dividend payments, and fees for managing corporate or individual retirement plans are all included in the category of fees arising from __________.
Q:
One part of __________ arises from fees charged for ATM and POS transactions.
Q:
In the worldwide banking system, __________ represent transferable time deposits in a variety of currencies and are often the principal source of short term borrowings by banks.
Q:
__________ can be held by individuals and nonprofit institutions, bear interest and permit drafts to be written against the account to pay third parties.
Q:
__________ consists of interest income received on loans from customers that has not yet been earned by the bank under accrual accounting methods.
Q:
________________ is an asset category which includes direct and indirect investment in real estate. These are properties obtained for compensations for nonperforming loans.
Q:
The activity of manipulating the financial statements to artificially enhance the banks financial strength is known as __________________.
Q:
Temporarily buying and selling securities by a securities firm in a thinly traded market so as to influence the price is known as ________________.
Q:
________________ labeled "Accounting for Derivative Instruments and Hedging Activities" and its recent amendments, __________, are designed to make derivatives more publicly visible on corporate financial statements.
Q:
______________ is labeled "Accounting for Derivative Instruments and Hedging Activities".
Q:
The __________________________ lists the assets, liabilities and equity capital held by the bank on a given date.
Q:
The __________________________ shows the amount of revenues received and expenses incurred over a specific time period.
Q:
The principal types of __________________________ include fee income, income from fiduciary activities, and service charges on deposits.
Q:
A financial institution often records the value of its assets and liabilities at ____________ which is the historical cost of the asset.
Q:
_____________________ is the sum of all outstanding IOUs owed to the bank in the form of consumer, real estate, commercial, and agriculture loans as well as other types of credit extensions.
Q:
A(n) __________________________ is a deposit account which pays an interest rate competitive with money market mutual funds and which generally has limited check writing ability.