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Finance
Q:
Because credit unions ____ stock, they are technically owned by the ____.
a. issue; depositors
b. do not issue; depositors
c. issue; stockholders
d. do not issue; management
Q:
Which of the following is true about credit unions versus commercial banks and savings institutions?
a. Credit unions are less able to quickly generate additional deposits.
b. Savings institutions and commercial banks can borrow from the Central Liquidity Facility, but credit unions cannot.
c. Savings institutions and commercial banks are less able to quickly generate additional deposits.
d. Credit unions have more exposure to interest rate risk.
Q:
When existing assets are used up in the ordinary course of business:
A) an expense is recorded.
B) unearned revenue is recorded.
C) an accrual is recorded.
D) a prepaid expense is recorded.
Q:
A company makes a deferral adjustment that decreased a liability. This must mean that a(n):
A) expense account was decreased by the same amount.
B) expense account was increased by the same amount.
C) revenue account was increased by the same amount.
D) revenue account was decreased by the same amount.
Q:
Credit unions obtain most of their funds from
a. issuing common stock.
b. retained earnings.
c. share deposits by members.
d. issuing long-term bonds.
Q:
The company uses up $5,000 of an existing asset and the company adjusts its accounts accordingly. This is an example of a(n):
A) accrual adjustment.
B) closing adjustment.
C) deferral adjustment.
D) unethical adjustment.
Q:
Interest-paying checkable accounts offered by credit unions are called
a. NOW accounts.
b. money market deposit accounts.
c. share certificates.
d. share drafts.
Q:
If certain assets are partially used up during the accounting period, then:
A) nothing is recorded on the financial statements until they are completely used up.
B) a liability account is decreased and an expense is recorded.
C) an asset account is decreased and an expense is recorded.
D) nothing is recorded on the financial statements until they are replaced or replenished.
Q:
Most mortgages originated by savings institutions are for
a. commercial buildings.
b. land for commercial purposes.
c. single-family homes or multifamily dwellings.
d. None of these are correct.
Q:
Adjusting entries are typically prepared:
A) at the beginning of the accounting period.
B) at the end of the accounting period.
C) on a daily basis.
D) on a weekly basis.
Q:
If a credit unions members are affiliated with a particular employer and large layoffs occur, the credit union's exposure to ____ risk may increase.
a. settlement
b. interest rate
c. credit
d. None of these are correct.
Q:
One of the major advantages of making adjustments in order to improve the quality of financial statements is that they:
A) ensure that revenues and expenses are recognized during the period they are earned and incurred.
B) ensure that all estimates of future activities are eliminated from consideration.
C) ensure that revenues and expenses are recognized conservatively during the period in which they are paid.
D) provide an opportunity to manipulate the numbers to the best advantage of the reporting company.
Q:
If depositors move money from their checking accounts to short-term CDs, this would ____ the rate sensitivity of the savings institution's liabilities to interest rate movements.
a. increase
b. have no effect on
c. decrease
d. increase AND decrease are correct, depending on the size of the savings institution
Q:
Because credit unions' sources and uses of funds are generally interest rate ____, movements in interest revenues and interest expenses of credit unions are ____.
a. sensitive; negatively correlated
b. insensitive; highly correlated
c. sensitive; uncorrelated
d. sensitive; highly correlated
e. insensitive; uncorrelated
Q:
Which of the following statements about the need for adjustments is not correct?
A) Without adjustments, the financial statements present an incomplete and misleading picture of the company.
B) Adjusting entries are intended to change the operating results to reflect managements objectives for operating performance.
C) Adjustments help the financial statements present the best picture of whether the companys activities were profitable for the period.
D) Adjustments help the financial statements present the economic resources that the company owns and owes at the end of the period.
Q:
Which of the following are NOT a deposit source of funds for savings institutions?
a. passbook savings accounts
b. retail CDs
c. money market funds
d. negotiable order of withdrawal (NOW) accounts
e. All of these are deposit sources of funds for savings institutions.
Q:
If a company forgot to prepare an adjusting entry to record salaries and wages incurred but unpaid at the end of the period, Total Liabilities would be understated and Retained Earnings would be overstated on the Balance Sheet.
Q:
Savings institutions can obtain capital by
a. issuing stock.
b. repurchasing stock.
c. borrowing from the Federal Reserve.
d. borrowing in the federal funds market.
Q:
If a company forgot to record depreciation on equipment for a period, Total Assets would be overstated and Total Stockholders Equity would be understated on the balance sheet.
Q:
The temporary accounts will have zero balances in a post-closing trial balance.
Q:
Savings institutions obtain most of their funds from
a. savings and time deposits.
b. loans.
c. mortgages.
d. repurchase agreements.
Q:
The closing process includes a transfer of the Dividends account balance to the Retained Earnings account.
Q:
Stock-owned savings institutions ____ susceptible to unfriendly takeovers. Mutual savings institutions ____ susceptible to unfriendly takeovers.
a. are; are not
b. are; are
c. are not; are
d. are not; are not
Q:
If the Retained Earnings account is debited for $4,000 in the closing process, the company had a net income of $4,000.
Q:
The ____ acts as a temporary lender to credit unions.
a. World Bank
b. Central Liquidity Facility
c. Federal Home Loan Bank
d. National Credit Union Administration
Q:
The asset, liability, and stockholders equity accounts are referred to as permanent accounts.
Q:
The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) prohibited savings institutions from
a. merging.
b. offering mortgage loans.
c. investing in junk bonds.
d. making loans to foreign governments.
Q:
Which of the following are NOT an asset of savings institutions?
a. loans
b. mortgages
c. NOW accounts
d. mortgage-backed securities
Q:
One of the purposes of the closing entries is to bring the balances in all asset, liability, revenue, and expense accounts down to zero to start the next accounting period.
Q:
A savings institution owned by its depositors is a ____ savings institution.
a. mutual
b. stock
c. credit
d. closed-end
Q:
The amounts of all the accounts reported on the balance sheet can be taken from the adjusted trial balance.
Q:
Deposits at credit unions are called
a. NOW accounts.
b. money market deposit accounts.
c. shares.
d. credit union deposit accounts.
Q:
An adjusted trial balance is completed to check that debits still equal credits after the income statement is prepared.
Q:
The risk that a credit union will experience an unanticipated wave of withdrawals without an offsetting amount of new deposits is ____ risk.
a. credit (default)
b. interest rate
c. liquidity
d. exchange rate
e. None of these are correct.
Q:
If a contra account of $20,000 is mistakenly included in the same column of the trial balance as the account it offsets, the error will cause the debit and credit column totals to differ by $40,000.
Q:
To manage interest rate risk, a savings institution could use
a. fixed-rate mortgages.
b. currency options.
c. interest rate futures contracts.
d. letters of credit.
Q:
Adjusting entries often involve cash.
Q:
Credit unions use the majority of their funds to
a. purchase investment securities.
b. provide commercial real estate loans.
c. provide small business loans to members.
d. provide consumer loans to members.
Q:
Corporate income taxes cannot be calculated until all other adjustments are made.
Q:
The maximum insurance per depositor provided by the National Credit Union Share Insurance Fund is
a. $250,000.
b. $50,000.
c. $40,000.
d. $25,000.
Q:
The amount charged for a good or service provided to a customer on account is recorded only after the payment is received.
Q:
____ are nonprofit organizations composed of members with a common bond.
a. Credit unions
b. Savings banks
c. Savings and loan associations
d. Commercial banks
Q:
The carrying value of an asset is an approximation of the asset's market value.
Q:
Savings institutions commonly ____ to reduce their risk.
a. purchase futures contracts on stock indexes
b. purchase futures contracts on Treasury bonds
c. sell futures contracts on stock indexes
d. sell futures contracts on Treasury bonds
Q:
Depreciation is a measure of the decline in market value of an asset.
Q:
A contra account is added to the account it offsets.
Q:
Credit unions use the majority of their funds to invest in the stock market.a. Trueb. False
Q:
As a company uses supplies, an adjustment should be made to decrease an asset account and increase an expense account.
Q:
Credit unions are unregulated as to the types of services they offer.
a. True
b. False
Q:
When a company pays its rent in advance, an asset is reported on the balance sheet.
Q:
The capital of savings institutions is primarily composed of retained earnings and funds obtained from issuing stock.
a. True
b. False
Q:
A deferral adjustment may involve one asset and one expense account.
Q:
Because credit unions do not issue stock, they are technically sole proprietorships.
a. True
b. False
Q:
The purpose of adjusting entries is to transfer net income and dividends to Retained Earnings.
Q:
Match the term and its definition. There are more definitions than terms.
Terms
____ 1. Contra-Account
____ 2. Carrying Value
____ 3. Deferral Adjustment
____ 4. Closing Journal Entry
____ 5. Net Loss
____ 6. Adjusted Trial Balance
____ 7. Temporary Account
____ 8. Accrual Adjustment
____ 9. Income Before Income Taxes
Definitions
A. When revenue minus expenses is a negative number.
B. Adds new values into the balance sheet and income statement accounts.
C. Also known as balance sheet accounts.
D. Entries made to update existing accounts and record new events.
E. The level of profit prior to considering income tax.
F. Lists the balances of all accounts to check that revenues equal expenses.
G. The amount at which an asset or liability is reported in the financial statements.
H. An account that is paired with another account and acts to reduce its book value.
I. Lists the balances of all temporary and permanent accounts to provide a check on the equality of the debits and credits.
J. A journal entry that transfers net income or loss to the Retained Earnings account.
K. Converts some of an asset's or a liability's book value into an expense or a revenue.
L. An account that must have a zero balance after Closing entries have been made.
M. Lists the balances of all permanent accounts to check that debits equal credits.
Q:
Today, savings institutions are not permitted to invest in junk bonds.
a. True
b. False
Q:
Match each transaction with the type of entry that will be required at April 30, the companys year-end.
Transaction
____ 1. The company has $8,300 in Prepaid Rent at the beginning of April and uses $3,600 of that for its April rent.
____ 2. The company provides lawn care in April for customers who will be billed and make payment in May.
____ 3. The company owes interest on loans for the month of April and will not pay this interest until May.
____ 4. The company uses $1,600 worth of fertilizer from its stock of supplies.
____ 5. The company provides lawn care in April for customers who paid in March.
____ 6. The company transfers revenues of $50,000 and expenses of $32,000 to Retained Earnings.
____ 7. The company makes an entry to allocate the use of equipment during the current account period.
____ 8. The company transfers the balance in the Dividends account of $1,200 to Retained Earnings.
____ 9. The company records income taxes.
____ 10. The weekly payroll of $5,000 to be paid next week is recorded.
Type of Entry
A Accrual adjusting entry
D Deferral adjusting entry
C Closing entry
Q:
High economic growth results in more risk for a savings institution, since its consumer loans, mortgage loans, and investments in debt securities are more likely to default.
a. True
b. False
Q:
A new Chief Executive Officer (CEO) was hired by a company on December 10, 2015. The CEO has been promised a significant bonus if 2016 net income is 10% more than 2015 net income. The CEO is considering taking the following actions:
A) Overstating the cost of machinery purchased in 2016
B) Prepaying 2016 expenses in 2015
C) Deferring 2016 expenses to 2017 and accruing revenues in 2016 that do not exist
D) Recording revenues earned in 2016 as unearned revenues
Required:
Explain how each of these actions would impact the 2016 net income amount and decide if the action is ethical.
Q:
All federally chartered credit unions are required to obtain insurance from the National Credit Union Share Insurance Fund (NCUSIF).
a. True
b. False
Q:
Assume that the accountant neglected to analyze the companys accounts and did not prepare any adjusting entries at the end of the year. The adjusting entries that should have been made are described in the table below.
Required:
For each overlooked adjusting entry, indicate how each error impacted the amounts of total assets, total liabilities, and total stockholders equity that were reported on the balance sheet and the amount of net income reported on the income statement. Descriptions of Overlooked Adjustments
Effect on Financial Statements (Overstated, Understated, or No Effect) Total Assets
Total Liabilities
Stockholders Equity
Net Income The current years depreciation on the buildings, equipment, and vehicles was not recorded. A customer payment made in advance for three months of services during the last month of the year was properly recorded; no adjustment was made at year-end. The premium paid on a three-month insurance policy during the last month of the current year was properly recorded; no adjustment was made at year-end. The entry to record employee wages during the last few days of the year was not recorded; the employees were paid during the next year.
Q:
An interest rate swap reduces the favorable impact of declining interest rates.
a. True
b. False
Q:
Listed below are the account balances that appear on the companys adjusted trial balance as of December 31, 2015. All accounts have normal balances. Cash
$1,500 Supplies
3,000 Service Revenue
6,000 Retained Earnings, January 1
500 Accounts Payable
700 Dividends
2,000 Unearned Revenue
1,800 Wages Expense
2,000 Supplies Expense
500 Required:
Determine the ending balance in the Retained Earnings account.
Q:
Under the Financial Reform Act (Dodd-Frank Act) of 2010, all federally chartered savings institutions are to be regulated by the Federal Reserve.
a. True
b. False
Q:
The alphabetical listing below includes all of the adjusted account balances of T.O.s Dance Studio as of December 31, 2015. All account balances are normal. Accounts Payable
$ 3,000 Accounts Receivable
8,000 Accumulated DepreciationEquipment
3,000 Common Stock
2,000 Cash
5,000 Depreciation Expense
1,000 Dividends
1,000 Equipment
9,000 Income Tax Expense
1,000 Income Taxes Payable
1,000 Rent Expense
2,000 Retained Earnings
3,000 Salaries and Wages Expense
4,000 Service Revenue
18,000 Unearned Revenue
1,000 Required:
Part a. Prepare the closing entries.
Part b. Prepare the post-closing trial balance as of December 31, 2015.
Part c . Prepare the classified balance sheet at December 31, 2015.
Q:
Credit unions obtain most of their funds by borrowing from the U.S. government.
a. True
b. False
Q:
The table below includes some of the accounts that are included on a companys chart of accounts.
Required:
For each of the accounts listed, identify whether the account is a temporary (T) or a permanent (P) account. Then, indicate whether the account will be closed with a debit (Dr) or credit (Cr) or whether it will not be closed (NC). Account
Temporary (T) or Permanent (P)
Closed with Debit (Dr), Closed with Credit (Cr), or Not Closed (NC) 1. Supplies Expense 2. Accumulated Depreciation 3. Sales Revenue 4. Notes Payable (long-term) 5. Unearned Revenue 6. Salaries and Wages Payable 7. Retained Earnings 8. Dividends 9. Interest Revenue 10. Prepaid Insurance
Q:
Because savings institutions commonly use long-term liabilities to finance short-term assets, they depend on additional deposits to accommodate withdrawal requests.
a. True
b. False
Q:
The following information was summarized from the adjusted trial balance of Reliance Yacht Repair, Inc. as of September 30, 2015, the end of the companys fiscal year. Accounts Payable
$1,500 Accounts Receivable
6,000 Accumulated DepreciationEquipment
2,000 Cash
9,420 Common Stock
9,300 Equipment
4,000 Insurance Expense
500 Interest Expense
80 Notes Payable (long-term)
2,500 Notes Receivable (short-term)
5,500 Prepaid Rent
500 Retained Earnings
3,200 Service Revenue
11,000 Supplies
1,500 Supplies Expense
2,500 Unearned Revenue
2,000 Utilities Expense
1,500 Required:
Part a. Prepare the closing entry for the company for the year ended September 30, 2015.
Part b. Draw a T-account for the Retained Earnings account. Enter the beginning balance into the T-account, post the closing entry, and then determine the ending balance.
Part c. Prepare a post-closing trial balance at September 30, 2015.
Q:
In general, savings institutions are larger than commercial banks.
a. True
b. False
Q:
On December 31, 2016, Ditka Inc. had Retained Earnings of $267,800 before its closing entries were prepared and posted. During 2016, the company had service revenue of $168,100 and interest revenue of $81,300. The company used supplies in the amount of $87,900, advertising expenses were $16,400, salaries and wages totaled $18,300, and income tax expense was calculated as $13,700. During the year, the company declared and paid dividends of $6,000.
Required:
Part a. Prepare the closing entries dated December 31, 2016.
Part b. Draw a T-account for the Retained Earnings account. Enter the beginning balance into the T-account, post the closing entries, and then determine the ending balance.
Q:
The National Credit Union Administration (NCUA) is responsible for regulating savings institutions.
a. True
b. False
Q:
The following items are taken from an adjusted trial balance prepared as of December 31, 2015. All accounts have normal balances. Cash
$ 2,950 Prepaid Insurance
2,200 Supplies
1,400 Equipment
20,400 Accounts Payable
1,900 Unearned Revenue
4,900 Common Stock
7,000 Retained Earnings
3,900 Dividends
2,200 Service Revenue
6,300 Rent Expense
1,500 Salaries and Wages Expense
2,300 Utilities Expense
600 Insurance Expense
200 Supplies Expense
3,100 Depreciation Expense
200 Accumulated DepreciationEquipment
400 Salaries and Wages Payable
300 Accounts Receivable
400 Note Payable (long-term)
12,750 Required:
Part a. Determine the Credits column total on the adjusted trial balance.
Part b. Determine that amount of net income (net loss) for the year.
Part c. Determine the Total Assets amount that will be reported on the Balance Sheet at December 31, 2015.
Part d. Determine the Total Liabilities amount that will be reported on the Balance Sheet at December 31, 2015.
Part e. Determine the amount of Retained Earnings that will be reported on the Balance Sheet at December 31, 2015.
Q:
Savings institutions commonly measure the gap between their rate-sensitive assets and rate-sensitive liabilities in order to determine their exposure to credit risk.
a. True
b. False
Q:
In general, when interest rates fall, a savings institution's cost of obtaining funds declines more than the decline in the interest earned on its loans and investments.
a. True
b. False
Q:
The following account balances are included in the adjusted trial balance of Delta Inc. as of April 30, 2015. All of the accounts have normal balances. Accounts Payable
$281,700 Accounts Receivable
753,950 Accumulated DepreciationEquipment
128,900 Common Stock
380,600 Cash
351,340 Dividends
20,000 Depreciation Expense
57,750 Equipment
672,500 Income Tax Payable
138,300 Income Tax Expense
138,300 Interest Receivable
4,300 Interest Revenue
114,100 Notes Payable (long-term)
229,600 Notes Payable
356,040 Prepaid Insurance
6,800 Prepaid Rent
11,200 Salaries and Wages Payable
23,400 Repairs and Maintenance Expense
247,900 Rent Expense
30,500 Retained Earnings
207,400 Service Revenue
904,000 Supplies
216,900 Supplies Expense
336,200 Unearned Revenue
83,600 Required:
Part a. Prepare an income statement.
Part b. Prepare a statement of retained earnings
Q:
Savings institutions do not really know the actual maturity of the mortgages they hold and cannot perfectly match the interest rate sensitivity of their assets and liabilities.
a. True
b. False
Q:
A company had calculated net income to be $77,550 based on the unadjusted trial balance. The following adjusting entries were then made for:
Salaries and wages owed but not yet paid of $790
Interest earned but not received from investments of $750
Prepaid insurance premiums amounting to $550 have expired
Unearned revenue in the amount of $750 has now been earned.
Required:
Determine the amount of net income (loss) that will be reported after the adjustments are recorded.
Q:
During the credit crisis of 20082009, some credit unions suffered losses on second mortgages and home-equity loans that they had provided, and some credit unions experienced losses on mortgage-backed securities in which they had invested.
a. True
b. False
Q:
All of the transactions of Starfish Tattoo Parlor Inc. for the year have been journalized and posted. The following information has been gathered for the adjustment process as of December 31, 2016:
A) The Supplies account shows a balance of $900. A count of supplies revealed $400 on hand.
B) The $1,200 premium relating to a oneyear insurance policy was paid on December 1, 2016.
C) The companys equipment, which was purchased last year, depreciates at a rate of $1,000 per year.
D) On September 30, 2016, a customer paid $10,000 in advance for services; as of December 31, 2016, services in the amount of $3,000 had been performed for this customer.
E) Employees are paid $5,000 on Fridays for the 5-day work week, which ends on that Friday. However, December 31, 2016 falls on a Thursday.
F) The company has completed $500 of work for customers; the customers have not yet been billed and the related revenue has not been recorded.
Required:
Part a. Prepare the required adjusting entries required at December 31, 2016.
Part b. For each of the adjusting items, indicate the amount and the direction of effects of the adjusting journal entry on the elements of the balance sheet and income statement. Complete the following table by entering the amount and the direction (+ or ) or NE if the adjustment has no effect on the related financial statement item. Transaction
Balance Sheet
Income Statement Total Assets
Total Liabilities
Stockholders Equity
Revenues
Expenses
Net Income A B C D E F