Q&A Hero

Q: Wiggly Pet Store had $6,000 of supplies at the end of October. During November, the company bought $2,000 of supplies. At the end of November, the company had $1,000 of supplies remaining. Which of the following statements is not correct? A) During November, the company used $7,000 of supplies. B) Supplies should be reported at $1,000 on the balance sheet. C) An expense should be debited for $7,000 in November. D) An asset should be debited for $1,000 in November.

Q: Access to a bank's ROA without any other information reveals when its performance is not up to par and the reasons for its poor performance. a. True b. False

Q: On December 31, 2015, the balance in Retained Earnings is $20,000. On December 31, 2016, the balance in Retained Earnings is $19,100. During 2016, dividends of $4,000 were declared and paid. What is the amount of net income for 2016? A) $4,900 B) $3,100 C) $900 D) $(900)

Q: The loan loss provision should increase during periods when loan losses are more likely, such as during a recessionary period. a. True b. False

Q: Which of the following statements about revenues and expenses is correct? A) If revenues are less than expenses, the company has a net loss and Retained Earnings decreases. B) If revenues are greater than expenses, the company has net income and Common Stock increases. C) If revenues are less than expenses, the company has a net loss and Common Stock increases to balance off the loss. D) If revenues are greater than expenses, the company has net income and Retained Earnings decreases.

Q: The loan loss provision as a percentage of assets should increase during periods of high economic growth. a. True b. False

Q: The Don't Tread on Me Tire Company had Retained Earnings at December 31, 2015 of $200,000. During 2016, the company had revenues of $400,000 and expenses of $350,000, and the company declared and paid dividends of $11,000. Retained earnings on the balance sheet as of December 31, 2016 will be: A) $39,000. B) $239,000. C) $250,000. D) $289,000.

Q: The Treasure Chest Corporation had Retained Earnings at the end of December 31, 2015 of $450,000. During 2016, the company had net income of $170,000 and declared dividends of $20,000. The amount of Retained Earnings reported on the balance sheet as of December 31, 2016 will be: A) $430,000. B) $600,000. C) $620,000. D) $640,000.

Q: Indicate whether the statement is true or false.Return on assets (ROA) will usually reveal when a bank's performance is not up to par, but it does not indicate the reason for poor performance.a. Trueb. False

Q: Banks tend to focus their loans in one industry so that they can specialize on that industry and reduce the credit risk of their loan portfolio. a. True b. False

Q: Which of the following statements about the statement of retained earnings is correct? A) Dividends increase net income and are added to calculate the ending balance of Retained Earnings. B) Dividends are subtracted to calculate the ending balance of Retained Earnings. C) Dividends are not used to calculate the ending balance of Retained Earnings. D) Dividends are not reported on the statement of retained earnings.

Q: The Financial Reform Act of 2010 provides that if a bank suffers large losses because it took excessive risk, the Federal Reserve will appoint a new board of directors for the bank. a. True b. False

Q: After net income has been determined, it is then transferred to the: A) balance sheet. B) income statement. C) statement of cash flows. D) statement of retained earnings.

Q: A positive gap (or gap ratio of more than 1.00) suggests that rate-sensitive liabilities exceed rate-sensitive assets. a. True b. False

Q: Lansing Limited had a beginning balance in its Retained Earnings account of $385,600. During the year, the company declared and paid a $4,700 dividend, and at the end of the year, it reported Retained Earnings of $399,860. The company's net income for the year was: A) $14,260. B) $18,960. C) $9,560. D) $0.

Q: A bank can usually simultaneously maximize its return on assets and minimize credit risk. a. True b. False

Q: Which of the following statements about the income statement is correct? A) Expenses are listed before revenues on the income statement. B) Revenues are listed before expenses on the income statement. C) The income statement is prepared after the balance sheet. D) Dividends are listed on the income statement.

Q: Floating-rate loans cannot completely eliminate interest rate risk; if the cost of funds is changing more frequently than the rate on assets, the bank's net interest margin is still affected by interest rate fluctuations. a. True b. False

Q: Which is the first financial statement that should prepared after the adjusted trial balance has been prepared? A) Balance Sheet B) Income Statement C) Statement of Cash Flows D) Statement of Retained Earnings

Q: Each bank may have its own classification system of interest rate sensitivity, because there is no perfect measurement of the gap. a. True b. False

Q: If no errors have been made, when a company prepares its adjusted trial balance: A) assets will equal liabilities plus Retained Earnings. B) stockholders' equity will include the current period's net income. C) the debit column and the credit column will be equal. D) income statement accounts will have been closed.

Q: Before the closing entries are prepared, the Retained Earnings balance in the adjusted trial balance is equal to the balance of that account: A) at the beginning of the period. B) after adding revenues and subtracting expenses but before subtracting dividends. C) at the end of the period. D) at the beginning of the next period.

Q: Banks increase their risk by increasing their capital as a percentage of assets. a. True b. False

Q: The balance of which of the following accounts appear in the credit column of an adjusted trial balance? A) Income Tax Payable B) Depreciation Expense C) Prepaid Insurance D) Interest Receivable

Q: Whether a bank has a temporary or a permanent need for funds, the decision should be to borrow in the federal funds market. a. True b. False

Q: The balance of which of the following accounts would appear in the debit column of an adjusted trial balance? A) Service Revenue B) Dividends C) Accumulated Depreciation D) Unearned Revenue

Q: Banks are more liquid as a result of securitization because it allows them to request repayment of the loan principal from the borrower upon demand. a. True b. False

Q: The Sarbanes-Oxley Act has had little impact on the monitoring conducted by the board members of commercial banks. a. True b. False

Q: When a trial balance is prepared, a contra-account appears immediately: A) before the account it offsets but in the opposite column. B) after the account it offsets and in the same column. C) after the account it offsets but in the opposite column. D) before the account it offsets and in the same column.

Q: An effective way to align bank managers interests with shareholders goal of higher returns is to compensate the managers with fixed salaries without a bonus. a. True b. False

Q: Which of the following statements about an adjusted trial balance is correct? A) Debits should equal credits both before and after adjustments are made. B) Debits will equal credits after adjustments are made but not necessarily before. C) Debits will equal credits before adjustments are made but not necessarily after. D) Debits do not have to equal credits in the adjusted trial balance but they must be equal in the post-closing trial balance.

Q: An adjusted trial balance should be prepared immediately: A) after the financial statements, but before closing. B) before posting adjusting entries. C) after posting adjusting entries. D) after journalizing adjusting entries.

Q: Indicate whether the statement is true or false.Most loan sales enable the bank originating the loan to continue servicing the loan.a. Trueb. False

Q: If total debits are not equal to total credits in an adjusted trial balance, which of the following errors may have occurred? A) Posting an entry to Salaries and Wage Expense to Administrative Expenses B) Debiting Interest Payable instead of debiting Interest Expense C) Recording a transaction twice D) Posting a credit to Salaries and Wages Payable as a debit to that account

Q: ​Which of the following is a method that a bank can use to reduce its credit risk? a. ​diversifying its loans across industries b. ​focusing on credit card loans c. ​focusing on consumer loans d. ​selling its holdings of Treasury securities

Q: After preparing adjusting entries, the equality of recorded debits and credits is checked by preparing a(n): A) post-closing trial balance B) adjusted trial balance. C) income statement. D) balance sheet.

Q: If a bank has assets and liabilities in dollars and euros, its exposure to interest rate risk can best be minimized if the a. currency mix of assets is similar to that of liabilities. b. overall rate sensitivity of assets and liabilities is similar. c. rate sensitivity of assets and liabilities is matched for each currency. d. currency mix of assets is similar to that of liabilities AND overall rate sensitivity of assets and liabilities is similar.

Q: Which of the following statements about the presentation of a trial balance is correct? A) The adjusted trial balance shows the end-of-year balance for Retained Earnings. B) An adjusted trial balance presents account balances in the same level of detail as in the presentation of the financial statements. C) The order of accounts on a trial balance is as follows: assets, liabilities, stockholders equity, dividends, revenues and expenses. D) The adjusted trial balance shows all the debit and credit postings to all the ledger accounts.

Q: If interest rates ____, banks with ____ duration gaps will be ____ affected. a. rise; positive; positively b. rise; positive; adversely c. decrease; positive; adversely d. decrease; zero; positively e. None of these are correct.

Q: Which of the following statements about adjustments is not correct? A) Adjusting entries affect the cash account. B) Adjustments to prepaid expenses and unearned revenues are deferral adjustments. C) Adjustments for wages and income taxes are normally accrual adjustments. . D) Adjusting entries involve one income statement account and one balance sheet account.

Q: ROE is defined asa. b. c. d.

Q: Which of these accounts would normally not be affected by an adjustment? A) The Supplies account. B) Revenue accounts. C) Expense accounts. D) The Cash Account.

Q: ​____ is (are) least likely to be used as a method of reducing interest rate risk. a. ​Maturity matching b. ​Floating-rate loans c. ​Stock options d. ​Interest rate swaps e. ​Interest rate caps

Q: Which of the following statements about adjusting entries is not correct? A) Adjustments are needed to ensure that the accounting system includes all of the revenues and expenses of the period. B) Adjustments help to ensure the related accounts on the balance sheet and income statement are up to date and complete. C) Adjusting entries often affect the cash account. D) Adjusting entries generally include one balance sheet and one income statement account.

Q: Banks would reduce their liquidity by restructuring their asset portfolio to contain fewer ____ and more ____. a. Treasury securities; excess reserves b. loans; Treasury securities c. corporate bonds; Treasury securities d. None of these are correct.

Q: Which of the following statements about adjustments is not correct? A) When making an adjustment to recognize supplies used in a period, total assets will not change. B) Accrued wages are wages owed, but not yet paid, to employees; the accrued wages will need to be recorded with an adjusting entry that increases expenses. C) Deferral adjustments are used to update amounts that have been previously deferred on the balance sheet. D) Depreciation is an example of a deferral adjustment.

Q: A common method for banks to reduce their credit risk is to a. specialize in loans to one or a few industries in which they have expertise in assessing creditworthiness. b. specialize in loans to companies whose earnings patterns are quite similar over time. c. specialize in loans to one or a few industries in which they have expertise in assessing creditworthiness AND specialize in loans to companies whose earnings patterns are quite similar over time. d. None of these are correct.

Q: Pinkneys Inc. had income before income tax of $164,000 last quarter and a 34% tax rate. What is the companys net income? A) $55,760 B) $108,240 C) $219,760 D) $482,353

Q: Durango Bank has $2 million in rate-sensitive liabilities and $3 million in rate-sensitive assets. Durango's gap is ____, and Durango is probably more concerned about a(n) ____ in interest rates. a. -$1 million; increase b. -$1 million; decrease c. $1 million; increase d. $1 million; decrease e. None of these are correct.

Q: To calculate the company's income tax expense for the current period, it is necessary to know the companys: A) operating revenue and tax bill from prior periods. B) adjusted income (before income taxes) and the company's tax rate. C) operating expenses and revenue. D) revenues, expenses, and dividends.

Q: ​A(n) ____________ is an agreement for a fee to receive payments when the interest rate of a particular security rises above a specified level by a specified date. a. ​interest rate cap b. ​interest rate futures contract c. ​interest rate swap d. ​maximum rate contract

Q: On December 31, 2015, interest of $500 is owed on a bank loan that will not be paid until June 30, 2016. What is the necessary adjusting journal entry on December 31, 2015? A) Debit Interest Expense and credit Cash for $500 B) Debit Interest Expense and credit Interest Payable for $500 C) Debit Interest Payable and credit Interest Expense for $500 D) Debit Interest Receivable and credit Interest Revenue for $500

Q: ____ is NOT a method used to assess interest rate risk. a. Gap analysis b. Ratio analysis c. Duration analysis d. Sensitivity analysis e. All of these are methods of assessing interest rate risk.

Q: A company has a loan that accrues interest at a rate of $20 a day. The company pays the interest once a quarter. Which of the following adjustments would be made at the end of a month in which no payment for interest was made? A) Debit Interest Payable and credit Interest Expense B) Debit Notes Payable and credit Cash C) Debit Interest Expense and credit Interest Payable D) Debit Cash and credit Notes Payable

Q: The measure of interest rate risk that uses the difference between rate-sensitive assets and rate-sensitive liabilities is called the a. gap. b. duration measurement. c. duration ratio. d. gap ratio.

Q: An adjustment to accrue the amount of salaries and wages owed was recorded on December 31. These salaries and wages were paid on the following January 5. The entry on January 5 would include a debit to: A) Salaries and Wages Expense and Credit to Cash. B) Salaries and Wages Payable and Credit to Cash. C) Cash and Credit to Salaries and Wages Payable. D) Cash and Credit to Salaries and Wages Expense.

Q: International diversification of loans can best reduce a bank's overall credit risk if a. the loans are made in countries in a single continent. b. the loans are made in countries whose economic cycles do not move together over time. c. the loans are made in countries in a single continent AND the loans are made in countries whose economic cycles do not move together over time. d. None of these are correct.

Q: A company incurred $5,000 in salaries and wages for employees for the year; $4,500 of these salaries and wages had been paid by the end of the year. Which of the following statements about this situation is correct? A) Salaries and Wages Payable on the income statement will be $4,500. B) Salaries and Wages Expense on the income statement will be $500. C) Salaries and Wages Expense on the balance sheet will be $5,000. D) Salaries and Wages Payable on the balance sheet will be $500.

Q: In an interest rate swap, a bank whose liabilities are ____ rate sensitive than its assets can swap payments with a ____ interest rate in exchange for payments with a ____ interest rate. a. more; fixed; variable b. more; variable; fixed c. less; fixed; variable d. less; fixed; fixed e. None of these are correct.

Q: A company reported Salaries and Wages Payable of $750 at the beginning of the year and $2,500 at the end of the year. The income statement for the year reported Salaries and Wages Expense of $56,200. How much cash was paid for salaries and wages during the year? A) $52,950 B) $56,200 C) $54,450 D) $53,700

Q: ​Which of the following financial institutions would be most willing to swap variable-rate payments for fixed-rate payments in order to reduce exposure to interest rate risk? a. ​one whose assets and liabilities are equally interest-rate sensitive b. ​one whose assets are more interest-rate sensitive than its liabilities c. ​one whose liabilities are more interest-rate sensitive than its assets d. ​one whose gap ratio is equal to 1.0

Q: Ringo Bank has a profit after taxes of $3 million, total assets of $300 million, and shareholders' equity of $30 million. Ringo's return on equity (ROE) is ____ percent. a. 1.0 b. 10.0 c. 3.0 d. None of these are correct.

Q: A company pays its workforce on Fridays for a five-day workweek ending on that day. The payroll for a week is $100,000. If the accounting year-end falls on a Tuesday, the adjusting journal entry to record this will include a A) debit to Salaries and Wages Expense $100,000. B) debit to Salaries and Wages Expense $40,000. C) credit to Salaries and Wages Payable $60,000. D) credit to Salaries and Wages Payable $100,000.

Q: Banks can resolve a liquidity problem by a. extending new loans. b. selling assets. c. buying back common stock. d. increasing dividend payouts. e. extending new loans AND selling assets.

Q: A company pays salaries and wages every two weeks. Salaries and wages amount to $100 a day and the company has a seven-day work week. On March 31, the company pays wages for the two weeks ending March 24 and recorded the related journal entry. The adjusting journal entry, dated March 31, to record unpaid wages and salaries owed since March 25 will include a debit to: A) Salaries and Wages Payable and a credit to Salaries and Wages Expense for $1,400. B) Salaries and Wage Expense and a credit to Salaries and Wages Payable for $700. C) Salaries and Wages Payable and a credit to Cash for $700. D) Salaries and Wages Expense and a credit to Salaries and Wages Payable for $1,400.

Q: Your business purchased an investment security on April 1 that will pay $90 interest on June 30. Which of the following adjusting entries would be made on April 30? A) Debit Interest Receivable and credit Interest Revenue for $90 B) Debit Interest Revenue and credit Interest Receivable for $30 C) Debit Interest Receivable and credit Interest Revenue for $30 D) Debit Interest Revenue and credit Interest Receivable for $90

Q: A bank has a return on assets of 2 percent, $40 million in assets, and $4 million in equity. What is the return on equity? a. 10 percent b. .2 percent c. 2 percent d. 20 percent e. None of these are correct.

Q: Match the term and the definition. There are more definitions than terms. TERM 1. _____ Unearned Revenue 2. _____ Revenue Recognition Principle 3. _____ Accrual Basis 4. _____ Time Period Assumption 5. _____ Expense 6. _____ Net Income DEFINITION A. To reduce the recorded value of an asset to better reflect its true market value. B. Any outlay of money by a company for any purpose. C. The practice of dividing the life of the business into months and years. D. The concept that revenue and expenses should be recorded at the time received or paid. E. The concept that revenue should be recorded when earned, not necessarily when payment is received. F. Revenues should be recorded when they are earned and expenses when they are incurred. G. Total revenue minus total expenses. H. Any use or sacrifice of a company's resources to generate revenue. I. The increase in value of financial assets held by a company. J. Payments received for goods that have not yet been delivered or services that have not yet been performed. K. The concept that a company should record revenue during the same period as expenses.

Q: Assume a U.S. bank accepts deposits in dollars and made some fixed-rate loans in British pounds. Which of the following would reduce the bank's profit margin? a. The pound appreciates against the dollar. b. The pound depreciates against the dollar. c. British interest rates decrease. d. British interest rates increase. e. British interest rates decrease AND British interest rates increase.

Q: Match the term and the explanation. There are more definitions than terms. TERM 1. _____ Cash Basis 2. _____ Net Profit Margin 3. _____ Unadjusted Trial Balance 4. _____ Prepaid Expense 5. _____ Unearned Revenue 6. _____ Revenue Recognition Principle 7. _____ Expense Recognition Principle DEFINITION A. Reported when a company sells goods or services in the ordinary course of business for more than it costs to produce. B. Reporting expenses and revenue according to the time the underlying activities occur. C. A list of account balances when the accounts do not yet include all revenues and expenses. D. The concept that expenses should be reported at the same time as the related revenue. E. The principle that changes in assets must be matched by changes in liabilities and equity. F. Also known as net assets, this is the value of assets minus liabilities. G. An indication that a company has already paid a cost not yet incurred. H. A company's policy on when to report revenue in the financial statements. I. Reporting expenses and revenues according to the time the money is paid or received. J. A liability account indicating customers have already paid for services not yet rendered. K. A ratio that indicates the percent of each revenue dollar that is left over after covering costs and expenses.

Q: ​The greater the ____, the greater the amount of assets per dollar's worth of equity. a. ​leverage measure b. ​ratio of equity to debt c. ​capital ratio d. ​proportion of loans to securities in the asset portfolio

Q: The following amounts were reported by the two companies: Net Income Total Assets Total Liabilities Total Revenues Raiden Inc. $42,000 $75,000 $40,000 $120,000 Nash Company 55,000 94,000 60,000 137,500 Required: Part a. Calculate each companys net profit margin expressed as a percent. Part b Which company has generated a greater return of profit from each revenue dollar?

Q: ​If a bank desires to maximize its net interest margin, it would best achieve its goal by attempting to obtain most of its funds through ____ and use most of its funds for ____ (assuming that all loans will be repaid). a. ​traditional demand deposits; commercial loans b. ​traditional demand deposits; consumer loans c. ​NOW accounts; consumer loans d. ​NOW accounts; commercial loans

Q: The records of Dame Inc. included the account balances set forth in the table below as of September 30. Part a. Complete the two columns in the table set forth below by indicating (column 1) whether it is reported in the income statement (I/S) or balance sheet (B/S) and (column 2) whether it is an asset (A), liability (L), stockholders equity (SE), revenue (R), or expense (E) account. Item Amount (1) Financial Statement (2) Account Type Accounts Payable $14,000 Accounts Receivable 15,000 Cash 1,200 Equipment 30,000 Interest Expense 1,000 Income Tax Expense 3,000 Operating Expense 13,000 Retained Earnings 19,000 Sales Revenue 25,000 Unearned Revenue 12,000 Part b. Prepare an income statement for the year ended September 30. Part c. Determine the companys net profit margin expressed as a percent.

Q: ____ is not a method used to assess interest rate risk. a. Efficiency analysis b. Gap analysis c. Duration analysis d. Sensitivity analysis

Q: At September 30, Balance Corporation reported the following unadjusted amounts for its accounts, each of which is considered to be a normal account balance. Prepare an unadjusted trial balance. Accounts Payable $12,000 Accounts Receivable 1,000 Advertising Expense 400 Cash 85,000 Common Stock 64,000 Equipment 60,000 Note Payable 36,000 Rent Revenue 42,000 Retained Earnings 24,800 Supplies 1,400 Supplies Expense 600 Utilities Expense 2,000 Salaries and Wages Expense 28,400

Q: Which of the following is a measure for banks to use to assess their exposure to interest rate risk? a. capital ratio b. leverage measure c. duration d. gap ratio e. duration AND gap ratio

Q: Geo Inc. had the following account balances on January 1, Year 2: Accounts Payable $ 689 Accounts Receivable 1,000 Cash 1,000 Common Stock 10,000 Equipment 500 Note Payable 3,000 Retained Earnings 2,911 Salaries and Wages Expense 3,500 Supplies 100 During January, Year 2, Geo entered into the following transactions: A. Paid $689 on account for utilities that were used during December Year 1. B. Purchased $423 of supplies for cash. C. Signed a rental agreement for office space and paid $3,500 in advance for six months of rent beginning February 1, Year 2. D. Purchased $15,000 of new equipment, signing a promissory note. E. Provided $26,000 of services. $17,000 was received in cash and $9,000 was provided on credit. F. Paid workers $8,300 for work done in January. Required: Part a. Prepare journal entries to record the transactions identified among activities (A) through (F). Part b. Set up T-accounts for Cash, Accounts Receivable, Supplies, Prepaid Rent, Equipment, Accounts Payable, Note Payable, Common Stock, Retained Earnings, Service Revenue, and Salaries and Wages Expense. The beginning balance in each T-account should be the amount shown in the list of account balances above or $0 if the account does not appear above. Then, summarize the effects of each transaction in the appropriate T-accounts. Part c. After posting the journal entries to the T-accounts, compute ending balances for each of the T-accounts.

Q: If a bank sells interest rate futures, it ____ the potential adverse effect of rising interest rates and ____ the potential favorable effect of declining interest rates on its interest expenses. a. reduces; reduces b. increases; increases c. reduces; increases d. increases; reduces

Q: Jims Gymnastics Trainings operations for the month of October are summarized as follows: A. Provided $5,000 of training to students on account. B. Received $4,000 cash from students for training provided in October. C. Received $1,000 cash for training to be provided in November. D. Received $3,000 cash from students on account for training provided in September. E. Paid Septembers gym rental bill on account in the amount of $1,000. F. Received Octobers rental bill of $1,500; set it aside. Required: Prepare journal entries to record the transactions identified among activities (A) through (F). Answer: A Accounts Receivable 5,000 Service Revenue 5,000 B Cash 4,000 Service Revenue 4,000 C Cash 1,000 Unearned Revenue 1,000 D Cash 3,000 Accounts Receivable 3,000 E Accounts Payable 1,000 Cash 1,000 F Rent Expense 1,500 Accounts Payable 1,500