Q&A Hero

Q: The objective of a credit union is to act as an intermediary for its members by using members deposited funds to provide loans to other members who are in need of funds. a. True b. False

Q: The table below describes the five adjustments that will be required and the accounts that will appear in each adjusting entry. Required: Complete the table by indicating whether the related adjusting entry will include a debit (Debit) or credit (Credit) to the accounts listed. Then, indicate whether the related adjusting entry will increase Description of Adjustment Account Included in Adjusting Entry (Dr or Cr) Effect on Retained Earnings (Increase or Decrease ) On June 1, the company paid $26,000 in advance for a one-year insurance policy starting on that date. Insurance Expense Prepaid Insurance The company sold gift cards totaling $18,300 during May. Customers used those gift cards for services performed in June. Service Revenue Unearned Revenue At June 30, the company owed $12,500 in salaries and wages to its employees; payment will be made in July. Salaries and Wages Expense Salaries and Wages Payable The company had income before income taxes of $287,400 for June and will pay taxes at the rate of 36%. The tax will be paid in July. Income Tax Expense Income Tax Payable The company earned interest on investments in the amount of $1,000 during June. The interest will be received in August. Interest Receivable Interest Revenue

Q: All of the accounts of the Grass is Greener Company have been adjusted as of December 31, 2016, with the exception of income taxes incurred but not yet recorded. Those account balances appear below. All have normal balances. The estimated income tax rate for the company is 40%. Cash $351,340 Accounts Receivable 753,950 Interest Receivable 4,300 Prepaid Insurance 6,800 Prepaid Rent 11,200 Supplies 216,900 Equipment 672,500 Accumulated DepreciationEquipment 128,900 Accounts Payable 281,700 Unearned Revenue 83,600 Income Tax Payable 0 Salaries and Wages Payable 23,400 Notes Payable (long-term) 356,040 LongTerm Debt 229,600 Common Stock 380,600 Retained Earnings 207,400 Dividends 20,000 Service Revenue 904,000 Interest Revenue 114,100 Supplies Expense 336,200 Repairs and Maintenance Expense 247,900 Depreciation Expense 57,750 Rent Expense 30,500 Income Tax Expense Unknown Required: Part a. Calculate the income before income tax. Part b. Calculate the income tax expense. Part c. Calculate the net income.

Q: Indicate whether the statement is true or false.Because credit unions are for-profit organizations, their income is taxable.a. Trueb. False

Q: Fees charged by a bank on various services allow the bank to generate a. noninterest income. b. components of net interest margin. c. components of net interest income. d. components of gross interest income.

Q: On April 30, 2016, Rudolph Inc. purchased a three-year insurance policy with a cash payment of $18,000. Coverage began immediately. Required: Part a. What is the amount of Insurance Expense relating to this insurance policy that will be reported for the year ended December 31, 2016? Part b. What is the balance of the Prepaid Insurance account at December 31, 2016?

Q: Garvey Companys unadjusted trial balance includes the following account balances as of December 31, 2015: Debits Credits Cash $ 68,900 Accounts Receivable 116,300 Interest Receivable 1,300 Supplies 138,600 Prepaid Insurance 8,700 Notes Receivable (short-term) 50,000 Equipment 277,800 Accumulated DepreciationEquipment $ 64,500 Accounts Payable 104,100 Salaries and Wages Payable 21,600 Unearned Revenue 9,200 Notes Payable (long-term) 87,400 Common Stock 216,100 Retained Earnings 143,500 Service Revenue 40,500 Interest Revenue 21,900 Supplies Expense 0 Repair and Maintenance Expense 26,400 Rent Expense 17,800 Depreciation Expense 0 Insurance Expense Salaries and Wages Expense 3,000 Totals $708,800 $708,800 The following data are available to determine adjusting entries: A) Insurance purchased at the beginning of July for $8,700 provided coverage for twelve months (July 2015 through June 2016). The insurance coverage for July through December totaling $4,250 has now been used. B) The company estimates $8,150 in depreciation each year. C) A count showed $85,700 of supplies on hand at the end of the year. D) An additional $260 of interest has been earned but has not yet been uncollected on the outstanding notes receivable. E) Services in the amount of $5,600 were performed for customers who had previously paid in advance. F) Services in the amount of $2,000 were performed; these services have not yet been billed or recorded. Required: Part a. Prepare the adjusting entries that are required at the end of the period. Part b. Prepare an adjusted trial balance by completing the related columns in the table below. Garvey Company Adjusted Trial Balance December 31, 2015 Debits Credits Cash Accounts Receivable Interest Receivable Supplies Prepaid Insurance Notes Receivable (short-term) Equipment Accumulated DepreciationEquipment Accounts Payable Salaries and Wages Payable Unearned Revenue Notes Payable (long-term) Common Stock Retained Earnings Service Revenue Interest Revenue Supplies Expense Repair and Maintenance Expense Rent Expense Depreciation Expense Insurance Expense Salaries and Wages Expense Totals

Q: A bank's net interest margin includes a. noninterest expenses. b. noninterest income. c. loan losses. d. None of these are correct.

Q: Lisa and Charlie operate a yacht maintenance service that they incorporated as Reliable Yacht Repair, Inc. They recently talked to their banker about obtaining a loan. The banker has requested their most recent financial statements prepared in accordance with GAAP. Lisa and Charlie are unsure of how to proceed and ask you for advice. You asked for their most recent unadjusted trial balance, which follows: Reliable Yacht Repair, Inc. Unadjusted Trial Balance June 30, 2015 Debits Credits Cash $19,500 Accounts Receivable 800 Notes Receivable (short-term) 1,000 Supplies 125 Prepaid Insurance 300 Equipment 10,000 Accounts Payable $ 300 Unearned Revenue 200 Notes Payable (long-term) 18,000 Common Stock 9,300 Retained Earnings 3,200 Service Revenue 950 Supplies Expense 50 Utilities Expense 175 Totals $31,950 $31,950 Required: Review the unadjusted trial balance and identify the accounts that might require adjustment at June 30, 2015. Then, describe what information you would need in order to determine the nature and amount of the adjusting entry for each of the accounts identified.

Q: Banks with relatively ____ ROAs are possibly incurring ____ noninterest expenses. a. low; low b. low; high c. high; high d. None of these are correct.

Q: Oklahoma Company has a fiscal year ending on December 31, 2015. The following information has been gathered so that the company could prepare adjustments: A) The company had $4,000 of office supplies on hand on January 1, 2015, purchased $6,300 of supplies during the year, and had $1,200 of supplies were on hand on December 31, 2015. B) On October 1, 2015, a three-year insurance premium of $27,000 was paid for coverage beginning on that date. The payment was recorded in the Prepaid Insurance account. C) A delivery vehicle was purchased for $30,000 on April 1, 2015. The vehicle has a 5-year useful life and no salvage value. Depreciation is estimated to be $6,000 per year or $500 per month. D) The company rents some of its unused factory space to a small manufacturer. The lease required an advance payment of $18,000 for six months rent on November 1, 2015, and the lease term began that day. The advance payment received from the tenant was recorded as Unearned Revenue when it was received. E) Employees work five days per week and are paid $75,000 every other Friday; each pay period includes ten week days. The last payday during the companys fiscal year was properly recorded on Friday, December 26, 2015. The employees worked on December 29, 30, and 31, 2015; they will not be paid for that work until Friday, January 9, 2016. F) The Accounting Department sends bills to customers every Friday and records the revenue earned at that time. Customers were billed and the related revenue was properly recorded on Friday, December 26, 2015. Since then, services were performed on December 29, 30, and 31, 2015; those services totaled $29,000. This amount has not been recorded. Required: Prepare the adjusting entry that is required for each of the situations described above. Assume that you are adjusting the related accounts as of the end of the year and that no adjustments have been made since the dates provided above.

Q: A banks return on assets (ROA) could be lower than desired because of all of the following EXCEPT a. the bank has experienced heavy loan losses. b. the bank was locked into fixed-rate loans prior to a rise in market interest rates. c. the bank is receiving a relatively small amount of noninterest income. d. the bank has reduced its noninterest expenses.

Q: The unadjusted trial balance of Sketch Star Makers Inc., prepared as of December 31, 2015, includes the following account balances. All of the accounts listed have normal balances. Cash $10,000 Accounts Receivable 2,000 Supplies 1,000 Prepaid Insurance 4,800 Equipment 10,000 Accumulated DepreciationEquipment 2,000 Notes Payable (long-term) 20,000 Unearned Revenue 5,000 Service Revenue 30,000 Salaries and Wages Expense 30,000 The following information is also available: A) A count of supplies revealed $400 worth on hand at December 31, 2015. B) An insurance policy, purchased on January 1, 2014, covers four years. C) The equipment depreciates at a rate of $1,000 per year; no depreciation has been recorded for 2015. D) Three-fifths (or 60%) of the amount recorded as Unearned Revenue remains unearned as of December 31, 2015 E) The accrued amount of salaries and wages at December 31, 2015 are $2,000. Required: Prepare the required adjustments for the company as of December 31, 2015.

Q: Changes in ____ are a factor affecting the value of a commercial bank over which the bank has some control. a. economic growth b. the risk-free interest rate c. industry conditions d. management abilities e. None of these are correct.

Q: The failure to record an accrual adjustment relating to salaries and wages would not affect the: A) balance sheet B) income statement C) statement of retained earnings D) statement of cash flows

Q: If a bank has short-term deposits and provides long-term fixed-rate loans, and interest rates decline over time, its net interest margin should be a. declining over time. b. rising over time. c. constant over time. d. consistently negative.

Q: Which of the following errors cause net income to be understated? A) Employee wages that have not been paid are not recorded. B) Depreciation Expense is not recorded. C) Collection of an accounts receivable is not recorded. D) Revenue that has been earned but not yet collected has not been recorded.

Q: ​A bank with ____ management may account for ____ loan losses, which _____ reported earnings now. a. ​conservative; smaller; reduces b. ​conservative; larger; reduces c. ​aggressive; larger; increases d. ​aggressive; smaller; has no effect on

Q: If the total amount that should have been debited to Insurance Expense is mistakenly debited instead to Prepaid Insurance, what will be the effect on the financial statements for the year? A) Revenues will be overstated. B) Assets will be overstated. C) Stockholders equity will be understated. D) Expenses will be overstated.

Q: ​The sum of net interest income, noninterest income, and securities gains, minus the provision for loan losses and noninterest expenses equals a. ​net interest margin. b. ​gross interest margin. c. ​net income. d. ​income before taxes.

Q: When it paid its rent in advance, a company recorded Prepaid Rent. As of the end of the accounting year, the prepayment had expired. If no adjustment is made to record this expiration, which of the following will occur? A) Assets will be understated and expenses will be overstated. B) Assets will be overstated and expenses will be understated. C) Assets and expenses will be overstated. D) Assets and expenses will be understated.

Q: If a bank has long-term fixed-rate assets and short-term liabilities, and interest rates increase over time, its net interest margin should a. decrease. b. increase. c. stay the same. d. EITHER decrease OR increase, depending on whether the asset maturities exceed 10 years.

Q: Which of the following will happen if the accrual adjustment entry is not made to record an expense incurred but not yet recorded? A) Both expenses and liabilities will be overstated. B) Both expenses and liabilities will be understated. C) Expenses will be understated and liabilities will be overstated. D) Expenses will be overstated and liabilities will be understated.

Q: When only equity counts as capital, the higher the capital ratio, the a. lower the leverage measure. b. lower the degree of financial leverage. c. higher the leverage measure. d. lower the leverage measure AND lower the degree of financial leverage. e. lower the degree of financial leverage AND higher the leverage measure.

Q: Which of the following will happen if the accrual adjusting entry is not made for revenue earned but not yet recorded? A) Assets will be understated and revenues will be overstated. B) Revenues will be understated and assets will be overstated. C) Both revenues and assets will be overstated. D) Both revenues and assets will be understated.

Q: ​Banks A and B have the same net income. Bank A has a higher capital ratio and more assets than B. Bank A's return on assets is ____ than Bank B's. Bank A's return on equity is ____ than Bank B's. a. ​higher; higher b. ​higher; lower c. ​lower; higher d. ​lower; lower

Q: Which of the following would decrease net income? A) Failing to post an adjusting entry to accrue revenue B) Understating the amount of Depreciation Expense recorded C) Failing to prepare an adjusting entry to recognize the portion of prepaid rent that has expired D) Overstating the year-end balance of the Supplies account

Q: Which of the following trial balances is used as a source for preparing the income statement? A) Unadjusted trial balance B) Pre-adjusted trial balance C) Adjusted trial balance D) Post-closing trial balance

Q: ​A bank's ROE ____ account for its financial leverage. A bank's ROA ____ account for its financial leverage. a. ​does; does b. ​does; does not c. ​does not; does not d. ​does not; does

Q: Which of the following is the usual last step in the accounting cycle? A) Preparing the adjusted trial balance. B) Preparing the financial statements. C) Preparing a post-closing trial balance. D) Preparing an unadjusted trial balance.

Q: ​A bank's ROA ____ account for taxes on earnings. A bank's ROE ____ account for taxes on earnings. a. ​does; does b. ​does; does not c. ​does not; does not d. ​does not; does

Q: ​When only equity counts as capital, the leverage measure is a. ​equal to the capital ratio. b. ​equal to return on assets. c. ​the inverse of return on assets. d. ​the inverse of the capital ratio.

Q: Which of the following is performed last at the end of the year? A) Prepare adjusting entries. B) Prepare an adjusted trial balance. C) Prepare closing journal entries. D) Prepare a post-closing trial balance.

Q: ​Interest income generated from all a banks assets is called a. ​net interest margin. b. ​the spread. c. ​gross interest income. d. ​net interest income.

Q: Which of the following is performed first at the end of each accounting period? A) Prepare adjusting entries. B) Prepare a post-closing trial balance. C) Prepare closing journal entries. D) Prepare the statement of retained earnings.

Q: ​Net income measured as a percentage of assets is a. ​return on equity (ROE). b. ​return on liabilities (ROL). c. ​return on investment (ROI). d. ​return on assets (ROA).

Q: Which of the following statements about financial statements and the trial balance is correct? A) Financial statements are prepared only after the adjusted trial balance has shown that debits equal credits. B) A post-closing trial balance should be prepared before temporary accounts are closed. C) An adjusted trial balance reflects the amount of Retained Earnings to be shown on the Balance Sheet. D) A post-closing trial balance lists the account balances of the accounts that are reported the income statement.

Q: ​Which of the following banks would likely have the highest return on equity? a. ​high return on assets, high capital ratio b. ​high return on assets, low capital ratio c. ​low return on assets, low capital ratio d. ​low return on assets, high capital ratio

Q: An error must have been made if which of the following accounts appears on the post-closing trial balance with a balance other than zero? A) Equipment B) Common Stock C) Accumulated Depreciation D) Depreciation Expense

Q: ​If a bank increases its provisions for loan losses, its interest income is ____, and its noninterest income is ____. a. ​reduced; not affected b. ​reduced; reduced c. ​not affected; reduced d. ​not affected; not affected

Q: Which of the following statements about the adjusted and post-closing trial balances is correct? A) The adjusted trial balance is prepared after the financial statements to verify that the numbers are accurate. B) The primary purpose of the post-closing trial balance is to see whether revenues are greater than expenses. C) The post-closing trial balance is a check that the accounting records are still in balance after posting all closing entries to the accounts. D) The post-closing trial balance debit column total is the amount to be shown as Total Assets on the Balance Sheet.

Q: Bank T generally obtains a high percentage of its funds from negotiable certificates of deposit (NCDs). Bank V obtains most of its funds from retail CDs. Bank Z obtains its funds from checking accounts. The bank that will likely incur the highest interest expense is ____. a. Bank T b. Bank V c. Bank Z d. All three banks are the same

Q: A company declared and paid a dividend of $8,000 this year. The entry to close the Dividend at the end of the year will include a debit to: A) Dividends and a credit to Cash for $8,000. B) Retained Earnings and a credit to Dividends for $8,000. C) Dividends and a credit to Retained Earnings for $8,000. D) Dividends and a credit to Dividends Payable for $8,000.

Q: Which of the following statements about the Dividends account is not correct? A) It has a debit balance. B) It reduces Retained Earnings. C) It is an expense. D) It is an account that is reported only on the statement of retained earnings.

Q: ​Banks G and H are the same size and have similar operations. Bank G holds the minimum level of capital, and Bank H holds a higher level of capital. Bank G's return on equity is probably ____ volatile than that of Bank H. Bank G's risk premium is probably ____ than that of Bank H. a. ​less; lower b. ​less; higher c. ​more; higher d. ​more; lower

Q: Dividends: A) are an expense of doing business. B) are not a legal obligation that a company must pay. C) are reported only on the statement of retained earnings. D) are reported on the balance sheet.

Q: Which of the following factors affecting a banks gross interest income is NOT influenced by the banks policy decisions? a. maturity and rate sensitivity of the banks assets b. market interest rate movements c. the banks loan rate d. composition of the banks assets

Q: ​Interest paid on deposits and borrowed funds is called a. ​net interest expense. b. ​net interest margin. c. ​gross interest expense. d. ​net spread expense.

Q: Which of the following is not a correct statement? A) Expense accounts are closed with credits. B) Revenue accounts are closed with debits. C) The Dividends account is closed with a credit. D) The Retained Earnings account is closed with a debit.

Q: ​During the credit crisis, the level of ____ was much higher than in other periods. a. ​interest income b. ​income expenses c. ​noninterest expenses d. ​loan loss provisions

Q: The Sales Revenue account has a credit balance of $367,200 at year end. After the closing entries have been posted, the account will: A) have a debit balance of $367,200. B) have a zero balance. C) still have a credit balance of $367,200. D) be removed entirely from the general ledger.

Q: ____ result(s) from a bank's sale of securities. a. Noninterest income b. Loan loss provision c. Securities gains and losses d. Noninterest expenses e. None of these are correct.

Q: Bearskin Inc. has recorded all the year-end adjustments. Its revenue accounts total $190,000 and its expense accounts total $130,000. The closing entry to close the income statement accounts for the year will debit the various: A) expense accounts for a total of $130,000, debit Retained Earnings for $60,000, and credit the various revenue accounts for a total of $190,000. . B) revenue accounts for a total of $190,000, credit the various expense accounts for a total of $130,000, and credit Retained Earnings for $60,000. C) expense accounts for a total of $130,000, credit the various revenue accounts for a total of $190,000, and credit Retained Earnings for $60,000. D) revenue accounts for a total of $190,000, debit Retained Earnings for $60,000, and credit the various expense accounts for a total of $130,000.

Q: Closing journal entries: A) transfer revenues and expenses to Retained Earnings. B) transfer assets and liabilities to Retained Earnings. C) transfer net income (or loss) and Dividends to Retained Earnings. D) close permanent and temporary accounts.

Q: Small banks tend to make more loans to small local businesses, and the rates on these loans are typically lower than the rates that larger banks charge on the loans they provide to large businesses.a. Trueb. False

Q: When interest rates fall, the rates that a bank pays on deposits typically decline less than the interest rates that the bank earns on its loans and investments. a. True b. False

Q: Which of the following statements about net income and net losses is not correct? A) Net income implies that revenues are greater than expenses. B) A net loss causes Retained Earnings to decrease. C) Net income causes stockholders equity to increase. D) A net loss increases the balance in Retained Earnings.

Q: Banks increase their loan loss reserves in order to boost their reported earnings. a. True b. False

Q: Assume that no dividends were declared during the current year. Which of the following statements about the effect of a net loss on the closing process is correct? A) If a company has a net loss during the current accounting period, then the ending Retained Earnings will be smaller than the beginning Retained Earnings. B) When closing entries are prepared, Common Stock is debited if a company has a net loss. C) If a company has a net loss, the closing entry will include debits to the revenue accounts, credits to the expense accounts, and a credit to Retained Earnings. D) If a company has a net loss, the amount of revenues to be closed will be greater than the amount of expenses to be closed in the closing process.

Q: After adjusting entries are prepared and posted, but before closing entries are prepared and posted, the balance in Retained Earnings is equal to: A) zero. B) the difference between total assets and total liabilities. C) the amount that is to be reported in the current year's balance sheet. D) the amount that was reported on the previous year's balance sheet.

Q: If banks continue to offer new services (such as insurance or securities services), their noninterest income will decrease over time. a. True b. False

Q: Which of the following statements about the Retained Earnings account is correct? A) Retained Earnings is a permanent account; income statement accounts are temporary. B) Retained Earnings and income statement accounts are all temporary accounts. C) Retained Earnings and income statement accounts are all permanent accounts. D) Retained Earnings is a temporary account, while income statement accounts are permanent accounts.

Q: The value of a commercial bank can be modeled as the present value of its future cash flows. a. True b. False

Q: Some banks that are experiencing serious financial problems may prefer to overstate their earnings in order to allow more time to correct their operations before the regulators force them to close. a. True b. False

Q: Permanent accounts: A) are not permitted under GAAP . B) have their balances zeroed-out at the end of each accounting year. C) do not have their year-end balance carried into the next year. D) are Balance Sheet accounts.

Q: Noninterest income is usually higher for small banks than for money center and large banks because small banks can charge higher rates on loans to small local businesses. a. True b. False

Q: Closing entries: A) are prepared before financial statements are prepared. B) reduce the number of permanent accounts. C) cause the revenue and expense accounts to have zero balances. D) summarize the activity in every account.

Q: The accounting process used by banks to determine their earnings is still based on subjective decisions, so the earnings of a bank are partially influenced by the accounting decisions regarding loan losses. a. True b. False

Q: Temporary accounts are closed at what stage of the accounting process? A) At the time that adjustments are made. B) After adjustments are made and before the income statement is prepared. C) After the income statement and the statement of retained earnings are prepared, but before the balance sheet is prepared. D) As the last journal entries at the end of each accounting year.

Q: Any individual bank's ROA depends on the bank's policy decisions, but is not affected by uncontrollable factors relating to the economy and government regulations. a. True b. False

Q: At the end of the accounting period: A) all accounts are closed. B) temporary accounts are closed; permanent accounts are not. C) permanent accounts are closed; temporary accounts are not. D) only accounts with a credit balance are closed.

Q: A bank's net interest margin represents the proportion of its investments that are financed with borrowed funds. a. True b. False

Q: Which of the following statements about the closing process is correct? A) Closing entries are recorded at the end of each reporting period which could be monthly, quarterly or annually. B) After closing entries are posted, the balances of the income statement accounts will be zero. C) Closing entries are made to zero out the balances of the permanent accounts on the balance sheet. D) After closing entries are posted, the only temporary account with a balance is the Dividends account.

Q: The level of competition is an industry characteristic that will favorably affect cash flows, because a high level of competition may increase a bank's volume of business or increase the prices it can charge for its services. a. True b. False

Q: A company reports Equipment on its classified balance sheet. The balance of the Accumulated Depreciation account appears on a classified balance sheet as: A) an addition to arrive at the amount of Equipment, Net. B) a subtraction to arrive at the amount of Equipment, Net C) part of Total Liabilities section. D) a subtraction in the Total Liabilities section.

Q: If the risk premium on a commercial bank rises, so will the required rate of return by investors who invest in the bank. a. True b. False

Q: Which of the following accounts would be classified as a current liability on a classified balance sheet? A) Service Revenue B) Salaries and Wages Expense C) Accumulated Depreciation D) Interest Payable

Q: Gross interest expenses of banks are normally higher in periods when market interest rates are higher. a. True b. False

Q: Which of the following accounts would be classified as a current liability on a classified balance sheet? A) Dividends B) Unearned Revenue C) Wages Expense D) Accounts Receivable

Q: Even if other external forces (such as interest rates) are unchanged, a commercial bank's expected cash flows can change in response to a change in its management skills. a. True b. False