Q&A Hero

Q: The moral hazard problem is minimized when deposit insurance premiums are a. zero (not imposed by the FDIC). b. the same for all banks. c. set at a fixed rate for large banks and at zero for small banks. d. based on the bank's risk.

Q: Bank regulations typically a. involve a trade-off between the safety of the banking system and the efficiency of bank operations. b. impose restrictions on the types of assets in which banks can invest. c. set requirements for the minimum amount of capital that banks must hold. d. All of these are correct.

Q: On June 30, a company paid a premium of $2,400 for one year of insurance coverage, which started on July 1. The company has a calendar year-end. Which of the following statements about this situation is correct? A) On June 30, Cash would be debited for $2,400. B) Insurance Expense of $1,200 will be reported on the income statement for the year ending December 31. C) Prepaid Insurance of $200 will be reported on the balance sheet at December 31. D) Prepaid Insurance of $2,400 will be reported on the balance sheet at December 31.

Q: In January, a company pays for advertising space in the local paper for ads to be run during the months of January, February, and March at $1,500 a month. The journal entry to record the payment would debit to: A) Cash for $4,500, credit Advertising Expense for $1,500, and credit Prepaid Advertising for $3,000. B) Accounts Payable and a credit to Cash for $4,500. C) Accounts Payable and a credit to Stockholders' Equity for $4,500. D) Advertising Expense for $1,500, debit Prepaid Advertising for $3,000, and credit Cash for $4,500.

Q: All banks that are members of the Federal Reserve must hold a. private insurance on deposits. b. FDIC insurance on deposits. c. both FDIC and private insurance on deposits. d. None of these are correct.

Q: On October 10, a company paid $12,000 to a supplier. Of that amount, $2,000 was for supplies received on October 10 and $10,000 was for supplies that were purchased on account during September. The journal entry to record the $12,000 payment would include a debit to: A) Supplies for $10,000, a debit to Accounts Payable for $2,000, and a credit to Cash for $12,000. B) Supplies and a credit to Cash for $12,000. C) Supplies Expense and a credit to Cash for $12,000. D) Supplies for $2,000, a debit to Accounts Payable for $10,000, and a credit to Cash for $12,000.

Q: The Basel III framework proposes a. lower capital requirements for banks to enable them to generate higher earnings to make up for their losses during the credit crisis. b. relying on the rating agencies to assess the risk of bank assets. c. increased capital requirements and liquidity requirements for banks. d. using the gap ratio to set the capital ratio.

Q: ​Which banking act allowed for the creation of NOW accounts? a. ​McFadden Act b. ​Glass-Steagall Act c. ​DIDMCA d. ​Garn-St Germain Act

Q: This month, Grass is Greener Lawn Service pays cash for $4,000 of grass fertilizer to be used two months from now. What journal entry will Grass is Greener record this month? A) Debit Cash and credit Supplies Expense for $4,000. B) Debit Supplies Expense and credit Accounts Payable for $4,000. C) Debit Supplies and credit Cash for $4,000. D) Debit Retained Earnings and credit Accounts Payable for $4,000.

Q: On October 31, your company prepays rent of $7,000 for November and December. Which of the following describes the effects of this transaction on your companys accounting equation? A) Assets decrease $7,000 and liabilities decrease $7,000. B) Assets increase $7,000 and stockholders' equity increases $7,000. C) There is no change to total assets, liabilities or stockholders' equity. D) Liabilities decrease $7,000 and stockholders' equity increases $7,000.

Q: ​The Depository Institutions Deregulation and Monetary Control Act of 1980 allowed banks to set their own a. ​reserve requirements. b. ​capital ratios. c. ​interest rates on savings deposits. d. ​corporate loan interest rates.

Q: A company received a bill of $3,500 for utilities used in the current month. The journal entry to record this event: A) will include a debit to Accounts Receivable for $3,500. B) will include a credit to Accounts Payable for $3,500. C) will include a credit to Utilities Expense. D) is not required; no journal entry should be prepared until the utilities bill is paid.

Q: Which of the following is NOT a specific criterion that regulators use to monitor banks? a. capital adequacy b. dollar value of fixed assets c. asset quality d. earnings e. sensitivity to financial market conditions

Q: Trudy's Caf paid employees $1,700 in September for work performed that month. What journal entry will Trudy's prepare to record that transaction? A) Debit Cash and credit Wages Revenue for $1,700. B) Debit Cash and credit Salaries and Wages Payable for $1,700. C) Debit Salaries and Wages Revenue and credit Cash for $1,700. D) Debit Salaries and Wages Expense and credit Cash for $1,700.

Q: The key reason for regulatory examinations (such as CAMELS ratings) is to a. rate past performance. b. detect problems of a bank in time to correct them. c. check for embezzlement. d. monitor reserve requirements.

Q: Use the information above to answer the following question. The journal entry prepared by Seconds Best Company to record customer payments on account during April would include a debit to: A) Cash and a credit to Unearned Sales Revenue for $50,000. B) Cash and a credit to Sales Revenue for $50,000. C) Cash and a credit to Accounts Receivable for $50,000. D) Cash and a credit to Accounts Payable for $50,000.

Q: ​The potential risk that financial problems can spread through financial institutions and the financial system is referred to as ________ risk. a. ​systemic b. ​systematic c. ​unsystematic d. ​market

Q: During the credit crisis, all of the following occurred EXCEPT a. some securities firms were allowed to become bank holding companies. b. the Federal Reserve rescued American International Group, an insurance company. c. the Treasury injected funds into financial institutions. d. the Supreme Court ruled that the Federal Reserve had exceeded its authority by assisting Bear Stearns because Bear was a securities firm and not a commercial bank.

Q: Use the information above to answer the following question. The journal entry prepared by Seconds Best to record the March sales would include a debit to: A) Cash for $10,000, debit to Accounts Receivable for $60,000, and credit to Sales Revenue for $70,000. B) Cash for $10,000, debit to Unearned Revenue for $60,000, and credit to Sales Revenue for $70,000. C) Cash for $10,000, debit to Accounts Payable for $60,000, and credit to Sales Revenue for $70,000. D) Cash and credit to Sales Revenue for $10,000.

Q: Use the information above to answer the following question. Which of the following statements about the activities for Maverick Law Firm for 2015 is correct? A) If Accounts Receivable at December 31, 2014 totaled $25,000, the amount of Accounts Receivable to be reported on the Balance Sheet at December 31, 2015 will be $24,000. B) The $2,000 received from clients for law services to be performed next year will be reported as revenue on the 2015 income statement. C) The $4,000 owed by clients for services performed this year will be reported as Accounts Payable on the balance sheet at December 31, 2015. D) The $5,000 received this year from clients in payment of their accounts will be reported as Services Revenue on the 2015 income statement.

Q: ​The opening of a commercial bank in the United States a. ​does not require a charter. b. ​always requires a charter from a state government. c. always requires a charter from the federal government.​ d. ​requires a charter from a state or the federal government. e. ​requires a charter from both the state and federal government.

Q: Which of the following is NOT a corrective action that regulators may take when a bank is identified as a problem bank? a. remove particular officers and directors of the bank b. request that the bank boost its capital level or delay its plans to expand c. require the bank to provide additional financial information that is periodically updated to allow continued monitoring d. take legal action against the bank if it does not comply with their suggested remedies e. All of these are possible corrective actions taken by bank regulators.

Q: Use the information above to answer the following question. Based on the activities above, as a result of these transactions during 2015, the law firms stockholders equity will: A) increase by $20,000. B) decrease by $5,000. C) increase by $17,000. D) decrease by $2,000.

Q: ​In making loans to a single customer, commercial banks ____ restricted to a maximum percentage of their capital, and they ____ allowed to use borrowed or deposited funds to purchase common stock. a. ​are; are b. ​are; are not c. ​are not; are d. ​are not; are not

Q: Use the information above to answer the following question. What is the amount of Law Services Revenue that will be reported on the income statement for the year 2015? A) $19,000. B) $22,000. C) $24,000. D) $17,000.

Q: The liquidity component of the CAMELS rating refers to a. how a bank's earnings would change if economic conditions change. b. how readily a bank's management would detect its financial problems. c. a bank's sensitivity to financial market conditions. d. the type of loans that a bank provides, the bank's process for deciding whether to provide loans, and the credit rating of debt securities that it purchases. e. whether a bank frequently needs to borrow from outside sources, such as the federal funds market.

Q: A company reported sales revenue, all of which arose from credit sales, of $40,000 on the income statement. Balance sheet information includes the following: Accounts Receivable, beginning of year $4,500 Accounts Receivable, end of year 800 Unearned Revenue, beginning of year 0 Unearned Revenue, end of year 7,750 How much cash was collected from customers during the year? A) $11,450. B) $51,450. C) $43,700. D) $38,200.

Q: Accounts Receivable had beginning balance of $4,210 and an ending balance of $3,495, and collections on account were $9,600. What was the amount of services that were performed on account? A) $8,885. B) $17,305. C) $10,315. D) $1,895.

Q: The Financial Reform Act (Wall Street Reform and Consumer Protection Act or Dodd-Frank Act) of 2010 a. ended the system of risk-based insurance premiums. b. set requirements for the Deposit Insurance Funds reserves. c. raised the limit for insured deposits to $750,000 per depositor. d. allowed large insurance companies such as American International Group to compete with the FDIC to insure bank deposits.

Q: CSI Inc. uses accrual basis accounting. During April, the company recorded sales revenue of $50,000 from sales of goods to customers who promised to pay in May. During May, the company received payment from these customers of $45,000. No other transactions with customers took place during these two months. Which of the following statements about income statement accounts is correct? A) The Sales Revenue account will have a $45,000 balance at April 30. B) The Accounts Receivable account has a balance of $5,000 at May 31. C) The Accounts Payable account has a balance of $5,000 at May 31. D) The Sales Revenue account will have a $45,000 balance at May 31.

Q: Which of the following statements is NOT correct with respect to the Financial Services Modernization Act of 1999? a. It expanded the Glass-Steagall Act. b. It enabled commercial banks to more easily pursue securities and insurance activities. c. It allowed securities firms and insurance companies to acquire banks. d. It required commercial banks to have a strong rating in community lending in order to pursue additional expansion in securities and other nonbank activities. e. All of these are correct.

Q: On the last day of the month, a company receives $8,000 of cash from customers. Of that amount, $1,000 was for services performed and $7,000 represented payments on account. The journal entry to record the $8,000 cash receipt would include a debit to: A) Accounts Receivable for $7,000, a debit to Service Revenue for $1,000, and a credit for $8,000 to Cash. B) Cash for $8,000, a credit to Accounts Receivable for $7,000, and a credit to Service Revenue for $1,000. C) Accounts Receivable for $7,000, a debit to Unearned Revenue for $1,000, and a credit to Cash for $8,000. D) Cash for $8,000, a debit to Service Revenue for $1,000, and a credit to Accounts Receivable for $7,000.

Q: The ____ is the fund used to cover insured depositors. a. Deposit Insurance Fund b. Federal Deposit Insurance Corporation Fund c. Bank Depository Insurance Fund d. Financial Institution Insurance Fund e. None of these are correct.

Q: Customers made payments totaling $8,000 on their accounts. Which accounts are affected by this transaction? A) Service Revenue and Retained Earnings increase by $8,000. B) Cash and Service Revenue increase by $8,000. Liabilities and Customer Expense increase by $8,000. C) Cash increases by $8,000 and Accounts Receivable decreases by $8,000. Revenue and Retained Earnings are unchanged. D) Cash and liabilities decrease by $8,000.

Q: ​The Financial Services Modernization Act of 1999 a. ​gave banks and other financial service firms less freedom to merge. b. ​allowed financial institutions to offer a diversified set of financial services. c. ​offered very few benefits to a financial institution's clients. d. ​increased the reliance of financial institutions on the demand for the single service they offer.

Q: Censing Company collected $5,000 from a customer on account. What journal entry will be prepared by Censing to record this transaction? A) Debit Cash and credit Accounts Receivable. B) Debit Cash and credit Service Revenue. C) Debit Accounts Receivable and credit Service Revenue. D) Debit Accounts Receivable and credit Cash.

Q: ____ is NOT a characteristic used by bank regulators to rate banks. a. Capital adequacy b. Current stock price c. Asset quality d. Management e. All of these are used to rate banks.

Q: During January, services totaling $1,500 were performed on account for a customer. The company collected that $1,500 from the customer in March. The journal entry to record the receipt of cash from the customer is recorded with a debit to: A) Cash and a credit to Accounts Receivable. B) Cash and a credit to Accounts Payable. C) Cash and a credit to Revenue. D) Purchases and a credit to Cash.

Q: ​The liquidity coverage ratio, which is measured under the Basel III guidelines, is the ratio of a banks _________ to its ___________. a. ​liquid assets; projected net cash outflow b. ​liquid assets; retained earnings c. ​Tier 1 capital; liquid assets d. ​projected net cash outflow; Tier 1 capital

Q: During March, the Long Life Consulting Company provides $23,000 in consulting services for a customer. The customer paid $12,000; the other $11,000 was on account. Which of the following statements about these transactions is correct? A) Cash increases by $12,000, Consulting Revenue increases by $11,000, and Accounts Receivable increases by $23,000. B) Cash increases by $12,000, Accounts Receivable increases by $11,000, and Consulting Revenue increase by $23,000. C) Accounts Receivable increases by $11,000, Liabilities decrease by $12,000, and Stockholders' Equity increases by $1,000. D) Revenues increase by $12,000, liabilities decrease by $12,000, and stockholders' equity is unchanged.

Q: ​Which banking act allowed interstate banking? a. ​Reigle-Neal Interstate Banking and Branching Efficiency Act b. ​Glass-Steagall Act c. ​DIDMCA d. ​Sarbanes-Oxley Act

Q: When Harmony Inc. performs $1,000 of services on account for a customer, Harmony will record a journal entry with a debit to: A) Cash and a credit to Accounts Receivable. B) Accounts Receivable and a credit to Service Revenue. C) Service Revenue and a credit to Unearned Revenue. D) Cash and a credit to Accounts Payable.

Q: ​National banks are regulated by ____, and state banks are regulated by ____. a. ​the Comptroller of the Currency; their state agency b. ​the Comptroller of the Currency; the Comptroller of the Currency c. ​their state agency; their state agency d. ​their state agency; the Comptroller of the Currency

Q: A bank can increase its capital ratio by a. buying back shares of its stock from shareholders. b. selling assets. c. increasing its dividend to encourage more investors to purchase its stock. d. increasing its off-balance sheet activities.

Q: In January, the Huntington Beach Resort (HBR) accepts your reservation and receives your $2,000 payment for a week of sun and fun in California during spring break. In January, HBR will record a journal entry that includes a debit to: A) Cash and a credit to Unearned Revenue. B) Accounts Payable and a credit to Service Revenue. C) Cash and a credit to Service Revenue. D) Service Revenue and a credit to Cash.

Q: ​Which banking act allowed banks to cross state lines in order to acquire a failing institution? a. ​McFadden Act b. ​Glass-Steagall Act c. ​DIDMCA d. ​Garn-St Germain Act

Q: In January, the Caribbean Dream Resort books and accepts a cash payment for $32,000 for vacation services to be provided during spring break in March. The journal entry recorded in January will include a debit to: A) Cash and a credit to Unearned Revenue. B) Accounts Payable and a credit to Service Revenue. C) Accounts Receivable and a credit to Service Revenue. D) Prepaid Expenses and a credit to Service Revenue.

Q: A federal bank charter is issued by the a. Comptroller of the Currency. b. Securities and Exchange Commission. c. U.S. Treasury. d. Federal Reserve. e. None of these are correct.

Q: West Corporation issued a $100 gift card. What journal entry will West Corporation record? A) Debit Cash and credit Sales Revenue for $100. B) Debit Cash and credit Unearned Revenue for $100. C) Debit Unearned Revenue and credit Cash for $100. D) Debit Accounts Receivable and credit Cash for $100.

Q: A common argument in favor of government rescues of large banks is that rescues can a. reduce systemic risk in the financial system. b. encourage banks to avoid risk. c. ensure that bank executives are properly compensated. d. prevent the moral hazard problem.

Q: Grossing Inc. receives $10,000 in advance this month for work to be performed next month. This month, the company should record a journal entry that includes a debit to: A) Cash and a credit to Service Revenue for $10,000. B) Cash and a credit to Unearned Revenue for $10,000. C) Cash and a credit to Accounts Receivable for $10,000. D) Prepaid Services and a credit to Cash for $10,000.

Q: Which banking act removed interest rate ceilings on deposits? a. McFadden Act b. Glass-Steagall Act c. DIDMCA d. Garn-St Germain Act

Q: Seconds Best Retail Store receives and immediately pays a $3,500 utility bill from the City Gas & Electric Company. City Gas & Electric Company will record the receipt of this payment with a journal entry that includes a: A) credit to Accounts Payable B) credit to Utilities Expense. C) debit to Utilities Revenue. D) debit to Cash.

Q: Federal deposit insurance a. has existed since the 1800s. b. was created in 1933. c. was created after World War II. d. was created in 1960.

Q: If a company is paid in full for services provided this month, how will the basic accounting equation be affected? A) Liabilities will decrease. B) Stockholders' equity will increase as revenue is recorded. C) Liabilities will increase. D) Assets will decrease.

Q: The Basel framework recommends that banks maintain capital in proportion to their a. mortgages. b. commercial paper. c. liabilities. d. risk-weighted assets.

Q: If a company receives payment when it provides a service: A) more than one journal entry is always needed. B) cash will be credited. C) a revenue account will be increased with a debit. D) stockholders equity will increase.

Q: The Volcker Rule, named for a former Fed chair a. is intended to increase the powers of the Fed. b. states that the U.S. government will rescue certain large banks if necessary to reduce systemic risk in the financial system. c. sets limits on banks proprietary trading. d. requires all banks to undergo annual stress tests.

Q: Which of the following accounts does not have a normal credit balance? A) Common Stock B) Accounts Payable C) Service Revenue D) Rent Expense

Q: ​____ is not a rating criterion used by bank regulators. a. ​Capital adequacy b. ​Savings deposit volume c. ​Asset quality d. ​Management e. ​Liquidity

Q: Which of the following accounts does not have a normal debit balance? A) Salaries and Wages Expense B) Service Revenue C) Accounts Receivable D) Cash

Q: A potential benefit of the Financial Services Modernization Act is that a. financial institutions can reduce their reliance on the demand for a single service. b. financial institutions can spread across state lines as a result of the act. c. financial institutions are free to provide loans for highly leveraged transactions and thereby increase their earnings. d. financial institutions can reduce their reliance on the demand for a single service AND financial institutions can spread across state lines as a result of the act.

Q: Which of the following accounts has a normal credit balance? A) Cash B) Notes Receivable C) Salaries and Wages Expense D) Unearned Revenue

Q: Your company received payment from a customer last month for a service that you provided this month. How will the business activity of the current month affect the basic accounting equation? A) Assets will not change; liabilities will decrease; and stockholders' equity will increase. B) Assets will increase, liabilities will increase, and stockholders' equity will not change. C) Assets will increase, liabilities will not change, and stockholders' equity will increase. D) Assets will decrease, liabilities will not change, and stockholders' equity will increase.

Q: The premiums banks pay to the FDIC for deposit insurance are a. the same fixed dollar amount for all banks. b. the same fixed percentage of the bank's deposits for all banks. c. the same fixed percentage of the bank's loan volume for all banks. d. based on the risk of the bank.

Q: An expense: A) will decrease the amount of net income on the income statement. B) will decrease the amount of Common Stock on the balance sheet. C) will be increased with a credit to the account. D) normally has a credit balance.

Q: Which of the following was NOT achieved by the Depository Institutions Deregulation and Monetary Control Act of 1980? a. removed interest rate ceilings on deposits b. allowed banks to offer NOW accounts c. increased competition among depository institutions d. allowed interstate banking for depository institutions in most states

Q: Which of the following journal entries would decrease stockholders' equity? A) Debit Prepaid Insurance and credit Cash B) Debit Unearned Revenue and credit Service Revenue C) Debit Supplies and credit Accounts Payable D) Debit Insurance Expense and credit Cash

Q: Which of the following was NOT a provision of the Financial Reform Act of 2010? a. established the Financial Stability Oversight Council b. put limits on banks proprietary trading c. established the Consumer Financial Protection Bureau d. reestablished the separation between banking and securities activities that had existed under the Glass-Steagall Act e. required derivative securities to be traded through a clearinghouse or exchange

Q: Which of the following statements about revenues and expenses is correct? A) Credits increase both revenues and expenses. B) Credits increase expenses and decrease revenues. C) Credits increase revenues and decrease expenses. D) Credits decrease both revenues and expenses.

Q: Which of the following statements about revenues and expenses is correct? A) Both revenues and expenses typically have credit balances. B) Revenues and expenses are considered assets and liabilities, respectively. C) Revenue is the same as cash. D) Expenses decrease the amount of stockholders equity.

Q: ​The Garn-St Germain Act of 1982 a. ​permitted depository institutions to offer money market deposit accounts. b. ​prevented depository institutions from acquiring problem institutions across geographic boundaries. c. ​required the Fed to explicitly charge depository institutions for its services. d. ​allowed the Fed to provide check clearing to depository institutions at no charge.

Q: ​The Glass-Steagall Act of 1933 prevented a. ​any firm that accepts deposits from underwriting stocks and bonds of corporations. b. ​any firm that accepts deposits from underwriting general obligation bonds of states and municipalities. c. ​any firm that accepts deposits from holding any corporate bonds in its asset portfolio. d. ​state-chartered banks from offering commercial loans.

Q: Which of the following statements regarding the expanded accounting equation is correct? A) Debits reduce expenses. B) The total credits recorded in revenue accounts must equal the total debits recorded in expense accounts. C) Across all revenue accounts, the total value of all debits must equal the total value of all credits. D) Credits increase revenues.

Q: Deposit insurance has a limit of a. $10,000. b. $25,000. c. $100,000. d. $250,000.

Q: Which of the following would eventually cause Retained Earnings to decrease? A) Receiving contributions from investors B) Earning unearned revenue C) Billing customers for services provided D) Using up supplies

Q: An increase in revenue always: A) increases stockholders' equity. B) increases assets. C) decreases stockholders' equity. D) decreases assets.

Q: The Volcker Rule prohibits banks from sponsoring or holding an ownership interest in a hedge fund or a private equity fund. a. True b. False Indicate the answer choice that best completes the statement or answers the question.

Q: Revenues: A) decrease assets. B) increase stockholders equity. C) increase liabilities. D) decrease expenses.

Q: Commercial banks are allowed to invest in junk bonds. a. True b. False