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Finance
Q:
The most important risk for finance companies is ____ risk.
a. settlement
b. accounting
c. credit
d. exchange rate
Q:
Internal controls include the policies and procedures a company implements to promote efficient and effective operations, protect assets, enhance accounting information, and adhere to laws and regulations.
Q:
Finance companies commonly act as ____ for accounts receivable; that is, they purchase a firm's receivables at a discount and are responsible for processing and collecting the balances of these accounts.
a. brokers
b. dealers
c. market makers
d. factors
e. None of these are correct.
Q:
The Sarbanes-Oxley Act (SOX) grants legal protection to whistle-blowers.
Q:
Unlike loans made by commercial banks, loans made by finance companies cannot be securitized (bundled together and sold as securities to investors).
a. True
b. False
Indicate the answer choice that best completes the statement or answers the question.
Q:
The incentive element of the fraud triangle includes reasons why top management may commit fraud such as enhancing job security and obtaining bigger paychecks.
Q:
When interest rates increase, finance companies tend to use more long-term debt to lock in their cost of funds over an extended period of time.
a. True
b. False
Q:
Internal control consists of the actions taken by people at every level of an organization to achieve its objectives relating to operations, reporting, and compliance.
Q:
Some finance companies offer credit card loans through a particular retailer.
a. True
b. False
Q:
The main competition for finance companies in the consumer loan market comes from pension funds and insurance companies.
a. True
b. False
Q:
The Sarbanes-Oxley Act (SOX) requires external auditors to test the companys internal control system.
Q:
Finance companies are regulated by the states and are not subject to regulation by any agency of the federal government.
a. True
b. False
Q:
The Grass is Greener Company borrows money from a bank. Part of the loan agreement requires Grass is Greener to maintain stockholders' equity of at least 40% of assets or otherwise to pay a higher interest rate. This requirement is referred to as a:
A) loan covenant.
B) credit rating.
C) bond rating.
D) call feature.
Q:
The fraud triangle identifies incentive, opportunity, and benchmarks as the requirements for a fraud to occur.
Q:
Overall, the liquidity risk of finance companies is higher than that of other financial institutions.
a. True
b. False
Q:
Employee fraud is often grouped into three categories, including corruption, asset misappropriation, and embezzlement.
Q:
Although commercial paper is available only for short-term financing, finance companies can continually roll over their issues to create a permanent source of funds.
a. True
b. False
Q:
A company billed a client for services performed on January 10. The customer paid one-half of the amount owed on January 20 and the other one-half on February 24. When should the company record the related Service Revenue?
A) On January 10
B) On January 20
C) One-half on January 20 and the other half on February 24
D) At year-end in an adjusting entry
Q:
Business finance companies focus on loans to very large businesses.
a. True
b. False
Q:
On December 16, 2015, B. Darin Company received $3,600 from S. Dee Company for rent of an office owned by B. Darin Company. The payment covers the period from December 16, 2015 through February 15, 2016. B. Darin Company recorded this as Unearned Rent when it was received on December 16. The adjusting entry on December 31 would include a:
A) credit to Rent Revenue of $900.
B) credit to Unearned Rent Revenue of $900.
C) debit to Rent Revenue of $1,800.
D) debit to Unearned Rent Revenue of $1,800.
Q:
The value of a finance company can be modeled as the present value of its future cash flows.
a. True
b. False
Q:
Unearned Revenue, which represents the companys obligation to honor gift cards previously issued to customers, totaled $5,500 at the beginning of the year and $7,500 at the end of the year. Customers purchased gift cards amounting to $42,000 during the year. What was the amount of gift cards redeemed by customers during the year?
A) $40,000
B) $44,000
C) $55,000
D) $29,000
Q:
Finance companies are not subject to state regulations on intrastate business.
a. True
b. False
Q:
Baylor Service Corp. redeemed $1,000 of gift cards that customers used to pay for services that were performed by the company. The related adjusting entry would include a debit to:
A) Accounts Receivable and a credit to Service Revenue.
B) Unearned Revenue and a credit to Service Revenue.
C) Cash and a credit to Unearned Revenue.
D) Cash and a credit to Service Revenue.
Q:
Many consumer finance companies provide personal loans directly to individuals to finance purchases of large household items.
a. True
b. False
Q:
An adjusting journal entry that includes an increase to an asset contra-account would also include an increase in a(n):
A) related asset account.
B) liability account.
C) revenue account.
D) expense account.
Q:
Finance companies are exempt from state regulations.
a. True
b. False
Q:
A company purchases software; it has an estimated useful life of three years. The adjustment to recognize amortization for the use of software would cause which of the following?
A) An increase in liabilities, an increase in expenses, and a decrease in stockholders' equity
B) A decrease in assets, a decrease in stockholders' equity, and an increase in expenses
C) A decrease in assets, an increase in liabilities, and an increase in expenses
D) An increase in assets, an increase in liabilities, and a decrease in expenses
Q:
Indicate whether the statement is true or false.Consumer finance companies sometimes provide mortgage loans to individuals.a. Trueb. False
Q:
If a savings institutions assets have a considerably longer duration than its liabilities, it can reduce its exposure to interest rate risk by
a. reducing its proportion of assets in the short duration categories.
b. increasing its proportion of liabilities in the short duration categories.
c. reducing its proportion of assets in the long duration categories.
d. reducing its proportion of assets in the short duration categories AND increasing its proportion of liabilities in the short duration categories.
Q:
Recording an adjusting journal entry to recognize depreciation would cause which of the following?
A) An increase in assets, an increase in liabilities, and a decrease in expenses
B) A decrease in assets, an increase in liabilities, and an increase in expenses
C) An increase in liabilities, an increase in expenses, and a decrease in stockholders' equity
D) A decrease in assets, a decrease in stockholders' equity, and an increase in expenses
Q:
The Accumulated Depreciation account is a(n):
A) expense account.
B) liability account.
C) asset account.
D) contraasset account.
Q:
The sensitivity of the cost of funds to interest rate movements has generally been
a. greater for credit unions than for savings institutions.
b. greater for credit unions than for commercial banks.
c. lower for credit unions than for savings institutions or commercial banks.
d. similar for credit unions as for savings institutions and commercial banks.
Q:
During the credit crisis of 20082009, savings institutions experienced all of the following EXCEPT
a. high default rates on loans to finance leveraged buyouts.
b. a decline in the level of mortgage originations.
c. high default rates on subprime mortgages.
d. losses on investments in mortgage-backed securities.
Q:
Which of the following is not a term for the value at which an asset is reported on a financial statement?
A) Carrying value
B) Book value
C) Equipment, net
D) Accrual value
Q:
The National Credit Union Share Insurance Fund (NCUSIF) requires all
a. federally chartered credit unions to obtain insurance from the NCUSIF.
b. state-chartered credit unions to obtain insurance from the NCUSIF.
c. credit unions to pay a supplemental insurance premium each year.
d. depository institutions to pay a supplemental insurance premium each year.
Q:
The book value of equipment is equal to which of the following?
A) Cost of equipment plus the related accumulated depreciation
B) Accumulated depreciation less the related depreciation expense
C) Cost of equipment less the related accumulated depreciation
D) Its accumulated depreciation plus the related depreciation expense
Q:
A contract that allows for the purchase of a specified debt security for a specified price at a future point in time is known as a(n)
a. interest rate futures contract.
b. interest rate swap contract.
c. interest rate cap contract.
d. security swap contract.
Q:
A contra-account:
A) increases the original value of the account to which it relates.
B) always appears in the same column of the trial balance as the account to which it relates.
C) offsets, or reduces, another account.
D) reduce the asset to its fair value.
Q:
Money market deposit accounts (MMDAs) are
a. trust accounts managed by savings institutions.
b. checking accounts that do not pay interest.
c. accounts offered primarily by money market funds.
d. deposit accounts offering limited checking and close-to-market interest rates.
Q:
The process of allocating the cost of buildings, vehicles, and equipment to the accounting periods in which they are used. is called:
A) accumulated allocation.
B) unearned revenue.
C) depreciation.
D) prepaid expense.
Q:
Which of the following is a correct statement about the nature of equipment?
A) While equipment is an asset, its use is recorded as an expense.
B) While equipment is an asset, its use is recorded as a liability.
C) While equipment is an asset; its use is recorded as affects Common Stock.
D) Equipment and its use both affect liabilities.
Q:
____ are the primary asset of savings institutions.
a. Mortgages
b. Cash balances
c. Investment securities
d. Business loans
Q:
On June, 30, 2015, a company purchased a twoyear insurance policy for $18,000, paying cash and debiting Prepaid Insurance for the entire twoyear premium amount. The adjusting entry on December 31, 2015 includes a:
A) credit to Prepaid Insurance $4,500.
B) credit to Insurance Expense $4,500.
C) credit to Prepaid Insurance $9,000.
D) debit to Insurance expense $9,000.
Q:
According to your text, about ____ percent of credit unions are insured by the National Credit Union Share Insurance Fund.
a. 20
b. 40
c. 60
d. 90
Q:
The Prepaid Insurance account has a normal balance of $3,750 at the beginning of the month. The company used $980 of insurance coverage during the month. Which of the following statements is correct?
A) The company should credit Insurance Expense for $980 and debit Prepaid Insurance for $980.
B) Retained earnings will decrease and stockholders' equity will increase.
C) The company should debit Insurance Expense for $980 and credit Prepaid Insurance for $980.
D) Retained earnings and stockholders' equity will both increase.
Q:
Federally chartered savings institutions are regulated by the
a. Securities and Exchange Commission (SEC).
b. National Credit Union Administration.
c. Comptroller of the Currency and the Federal Reserve.
d. U.S. Treasury.
Q:
Three months of rent were prepaid on May 1 for $7,200, but two months have now expired, leaving only one month prepaid at June 30. What is the amount of rent expense that will be recorded in the related adjusting entry dated June 30?
A) $0
B) $2,400
C) $4,800
D) $7,200
Q:
The Financial Reform Act of 2010 did all of the following EXCEPT
a. strengthened the standards required to obtain a mortgage.
b. required more disclosures by financial institutions regarding the quality of the underlying assets when they sell mortgage-backed securities.
c. required savings institutions to sell off any holdings of junk bonds and prohibited them from investing in junk bonds in the future.
d. established the Consumer Financial Protection Bureau.
Q:
____ is (are) not a main use of funds for savings institutions.
a. Capital
b. Mortgages
c. Consumer and commercial loans
d. Mortgage-backed securities
Q:
The asset account Office Supplies has a balance of $800 at the beginning of the year. The amount on hand at the end of the year is $500. The company has calculated the Supplies Expense for the year to be $3,500. Based on this information, what amount of office supplies was purchased during the year?
A) $0
B) $4,000
C) $3,200
D) $3,000
Q:
A company started the year with $1,500 of supplies on hand. During the year the company purchased additional supplies of $800 and recorded them as increase to the supplies asset. At the end of the year the company determined that only $300 of supplies are still on hand. What is the adjusting journal entry to be made at the end of the period?
A) Debit Supplies Expense and credit Supplies for $2,000
B) Debit Supplies and credit Supplies Expense for $300
C) Debit Supplies Expense and credit Supplies for $1,200
D) Debit Supplies and credit Supplies Expense for $1,000
Q:
Which of the following was NOT a major reason for the savings institution crisis in the late 1980s?
a. large losses on real estate loans
b. large losses on loans to less-developed countries
c. fraud
d. illiquidity
e. increased interest expenses
Q:
During the month, a company uses up $4,000 of supplies. At the end of the month, the related adjusting journal entry would result in a(n):
A) decrease in an asset and an equal decrease in expenses.
B) increase in an asset and an equal increase in expenses.
C) decrease in an asset and an equal increase in expenses.
D) increase in an asset and a decrease in expenses.
Q:
To measure ____ risk, some savings institutions measure the duration of their respective assets and liabilities.
a. credit
b. interest rate
c. liquidity
d. None of these are correct.
Q:
At the end of the month, the adjusting journal entry to record the use of supplies would include a debit to:
A) Supplies and a credit to Supplies Expense.
B) Supplies Expense and a credit to Supplies.
C) Supplies and a credit to Service Revenue.
D) Supplies and a credit to Cash.
Q:
Adjusting entries affect:
A) only balance sheet accounts.
B) only income statement accounts.
C) only statement of cash flow accounts.
D) both income statement and balance sheet accounts.
Q:
____ savings institutions hold the most assets in aggregate.
a. Stock-owned
b. Mutual
c. Closely held
d. Privatized
Q:
One major difference between deferral and accrual adjustments is that:
A) accrual adjustments affect income statement accounts and deferral adjustments affect balance sheet accounts.
B) deferral adjustments increase net income and accrual adjustments decrease net income.
C) deferral adjustments are made under the cash basis of accounting and accrual adjustments are made under the accrual basis of accounting..
D) accounts affected by an accrual adjustment always go in the same direction (i.e., both accounts are increased or both accounts are decreased) and accounts affected by a deferral adjustment always go in opposite directions (one account is increased and one account is decreased).
Q:
To obtain short-term funds, savings institutions commonly borrow funds in the ____ market.
a. stock
b. bond
c. mortgage
d. federal funds
e. futures
Q:
One major difference between deferral and accrual adjustments is that deferral adjustments:
A) involve previously recorded assets and liabilities and accrual adjustments involve previously unrecorded assets and liabilities.
B) are made after financial statements are prepared and accrual adjustments are made before financial statements are prepared.
C) are made annually and accrual adjustments are made monthly.
D) are influenced by estimates of future events and accrual adjustments are not.
Q:
Which of the following statements is NOT correct?
a. A mutual-to-stock conversion allows savings institutions (SIs) to obtain additional capital by issuing stock.
b. Because of their ownership structure, mutual SIs are more susceptible to unfriendly takeovers.
c. When a mutual SI is involved in an acquisition, it first converts to a stock-owned SI.
d. Consolidation and acquisitions have caused the number of mutual and stock SIs to decline consistently over the years.
Q:
Which of the following statements about adjustments is correct?
A) An accrual adjustment that increases an asset will include an increase in an expense.
B) A deferral adjustment that decreases an asset will include an increase in an expense.
C) An accrual adjustment that increases an expense will include an increase in assets.
D) A deferral adjustment that increases a contra account will include an increase in an asset.
Q:
The primary use of credit union funds is
a. loans to credit union members.
b. the purchase of government securities.
c. the purchase of agency securities.
d. the purchase of corporate bonds.
e. None of these are correct.
Q:
Which of the following is NOT an advantage of credit unions?
a. They can offer attractive rates to their members because they are nonprofit and therefore are not taxed.
b. Their noninterest expenses are relatively low, because their offices and furniture are often donated or provided at a very low cost through the affiliation of their members.
c. Their large membership allows them to effectively diversify geographically.
d. All of these are advantages of credit unions.
Q:
If an expense has been incurred but will be paid later, then:
A) nothing is recorded on the financial statements.
B) a liability account is created or increased and an expense is recorded.
C) an asset account is decreased or eliminated and an expense is recorded.
D) a revenue and an expense are accrued.
Q:
When savings institutions are unable to attract sufficient deposits, they can
a. borrow in the federal funds market.
b. borrow from the Federal Reserve.
c. borrow through a repurchase agreement.
d. All of these are correct.
Q:
An example of an account that could be included in an accrual adjustment for expense is:
A) Accounts Receivable.
B) Interest Payable.
C) Prepaid Insurance.
D) Accumulated Depreciation.
Q:
____ do NOT represent an asset of credit unions.
a. Mortgage-backed securities
b. Home-equity loans
c. Automobile loans
d. Stocks
Q:
A company owes rent at a rate of $6,000 per month. The company pays the rent owed on the tenth of each month for the previous month. At the end of each month, what kind of adjustment is required?
A) An accrual adjustment
B) A closing adjustment
C) A deferral adjustment
D) No adjustment
Q:
A savings institution's cash flows are ____ interest rate movements.
a. positively related to
b. inversely related to
c. unrelated to
d. None of these are correct.
Q:
An example of an account that could be included in an accrual adjustment for revenue is:
A) Interest Receivable.
B) Interest Payable.
C) Unearned Revenue.
D) Cash.
Q:
Today, credit unions are regulated as to the
a. types of services they can offer.
b. rates they offer on deposits.
c. maturity of residential loans they can make.
d. size of residential mortgage loans they can make.
Q:
Accrued revenues recorded at the end of the current year:
A) often result in cash receipts from customers in the next period.
B) often result in cash payments in the next period.
C) are also called Unearned Revenues.
D) are recorded in the current year when cash is received.
Q:
The majority of maturities on consumer loans offered by credit unions are ____ term, causing income generated on their asset portfolio to be ____ to interest rate movements.
a. long; insensitive
b. short or medium; sensitive
c. long; sensitive
d. short or medium; insensitive
Q:
Accrual adjustments involve increasing:
A) assets and revenues or increasing liabilities and expenses.
B) assets and expenses or increasing liabilities and revenues
C) assets and decreasing revenues or increasing liabilities and decreasing expenses
D) assets and decreasing expenses or increasing liabilities and decreasing revenues
Q:
____ is (are) not a main source of funds for savings institutions.
a. Deposits
b. Borrowed funds
c. Capital
d. Mortgages
Q:
At the end of the year, accrual adjustments could include a:
A) debit to an expense and a credit to an asset.
B) credit to a revenue and a debit to an expense.
C) debit to cash and a credit to Common Stock.
D) debit to an expense and a credit to a liability.
Q:
____ risk is probably the least concern for savings institutions.
a. Liquidity
b. Exchange rate
c. Credit
d. Interest rate
Q:
When a deferral adjustment is made to an asset account, that asset becomes a(n):
A) liability.
B) other asset.
C) revenue.
D) expense.