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Finance
Q:
Which of the following is not an operating activity?
A) Paying off a loan to the bank
B) Receiving cash from customers for services rendered
C) Paying employees for work completed
D) Billing customers for services rendered but not yet paid for
Q:
The federal funds rate is ____ the yield on a Treasury security with a similar term remaining until maturity.
a. substantially above
b. substantially below
c. close to
d. The rate is much higher than the Treasury yield in some periods and much lower in other periods.
Q:
Which of the following would not be considered an operating activity?
A) Pay employees for work completed
B) Purchase supplies on account
C) Purchase equipment for cash
D) Sell goods to customers
Q:
The federal funds rate is typically ____ the primary credit rate.
a. higher than
b. less than
c. equal to
d. None of these are correct.
Q:
Net income is based on estimates.
Q:
It is possible for a company to be profitable, yet not have enough cash to pay its bills.
Q:
For any given bank, federal funds ____ represent a(n) ____.
a. purchased; asset
b. sold; liability
c. purchased; liability
d. purchased; asset AND sold; liability
Q:
A single loan in the federal funds market is usually for ____; when a bank sells a single repurchase agreement, the maturity is usually ____.
a. just a few days; one year or more
b. several weeks; one year or more
c. several weeks; just a few days
d. just a few days; just a few days
Q:
When accrual basis accounting is used, net income equals the amount of cash generated by the business.
Q:
States may enact _______ to set a maximum on the rate of interest that banks can charge.
a. leveraged loan laws
b. credit protection laws
c. consumer interest laws
d. usury laws
Q:
To evaluate a companys net profit margin, it is best to compare it to another company in the same industry.
Q:
Cash held ____ represents the major portion of a bank's required reserves.
a. at other commercial banks
b. in a bank's vault
c. at the Federal Reserve district banks
d. on deposit with the Board of Governors
Q:
A net profit margin of 15.4% means that the company used 84.6 cents of each sales dollar to cover costs and expenses.
Q:
When a bank obtains funds through ____, households are not a common provider of the funds.
a. NOW accounts
b. retail CDs
c. passbook savings accounts
d. NCDs
Q:
If the total of debits equals the total of credits on the trial balance, it means that the accounting records do not contain any errors.
Q:
Money market deposit accounts (MMDAs)
a. require a maturity of six months or longer.
b. allow a limited number of checks to be written against the account.
c. pay a higher interest rate than CDs.
d. None of these are correct.
Q:
Net income is increased when accounts receivable are collected.
Q:
A forward contract on currency
a. is a way to hedge credit (default) risk.
b. is used to swap fixed interest payments in one currency for variable interest payments in another currency.
c. is an agreement between a customer and a bank to exchange one currency for another on a specified date at a specified exchange rate.
d. is an agreement between a customer and a bank to exchange one currency for another on a specified date at whatever the exchange rate is on that day.
Q:
A company does not need to record the receipt of a bill for utilities used during this year if the company will not pay the bill until next year.
Q:
When banks need funding for just a few days, they would most likely
a. issue bonds and then call them.
b. issue stock and then repurchase it.
c. borrow in the federal funds market.
d. issue NCDs.
Q:
When cash is paid before the related expense is incurred, an asset is reported on the balance sheet.
Q:
The main use of bank funds is for
a. loans.
b. investment securities.
c. fixed assets.
d. repurchase agreements.
Q:
Costs that benefit future periods are reported as assets.
Q:
From a bank managers perspective, the differential in interest between a banks loans and its deposits
a. must not exceed the federal funds rate.
b. is called the primary credit rate.
c. must be sufficient to cover the banks expenses and generate a reasonable profit for the banks owners.
d. must be sufficient to cover the banks deposit insurance premiums and its reserve requirements at the Federal Reserve.
Q:
Unearned Revenue is reported on the balance sheet as a liability.
Q:
GAAP does not allow cash basis accounting to be used in external financial reports.
Q:
Which of the following is NOT correct with respect to the federal funds market?
a. It allows depository institutions to accommodate the short-term liquidity needs of other financial institutions.
b. Federal funds purchased (borrowed) represent an asset to the borrowing bank and a liability to the lending bank.
c. It is typically most active on Wednesday when banks that are short of required reserves must compensate before the settlement period ends.
d. All of these are correct.
Q:
Dividing up the continuing life of a company into shorter periods is called the time period assumption.
Q:
In a standby letter of credit, a bank agrees to
a. charge a fixed interest rate for a line of credit for a specified period.
b. back a customers obligation to a third party.
c. provide a customer with funds up to a specified maximum amount over a specified period.
d. service credit card loans originated by another bank.
Q:
When expenses exceed revenues in a period, stockholders equity will increase.
Q:
Commercial banks are allowed to invest in
a. Treasury securities.
b. Freddie Mac securities.
c. Fannie Mae securities.
d. All of these are correct; banks can invest in all of these securities.
Q:
If revenues are not growing faster than expenses, then net income will decrease.
Q:
The interest rate charged on loans between depository institutions is commonly referred to as the
a. federal funds rate.
b. discount rate.
c. primary credit rate.
d. None of these are correct.
Q:
When a bank in need of funds for a few days sells some of its government securities to a corporation with a temporary excess of funds and then buys them back shortly thereafter, this is a
a. federal funds loan.
b. loan through the Federal Reserves lending facility.
c. repurchase agreement.
d. commercial paper transaction.
Q:
If a company decides to record an expenditure made this period as an expense, when it should have been recorded as an asset, net income will be overstated in the current period as a result.
Q:
Which of the following is NOT an off-balance sheet activity?
a. highly leveraged transactions (HLTs)
b. standby letters of credit
c. forward contracts
d. swap contracts
Q:
Expenses are the costs of operating the business that are paid for in the period covered by the income statement.
Q:
A ____ is a type of loan commitment.
a. standby letter of credit (SLC)
b. note issuance facility (NIF)
c. forward contract
d. swap contract
e. None of these are correct.
Q:
The period of time from buying goods and services to collecting cash from customers is the accounting cycle.
Q:
Obtaining funds through ____ is not a common way for banks to satisfy a temporary deficiency of funds.
a. issuing bonds
b. the federal funds market
c. repurchase agreements
d. borrowing from the Federal Reserve
Q:
At the start of the first year of operations, Retained Earnings would be:
A) equal to zero.
B) equal to Common Stock.
C) equal to stockholders' equity.
D) equal to the Net Income.
Q:
A current asset is one that the company:
A) has owned for over one year.
B) has owned for over five years.
C) will use up or converted into cash in less than 12 months.
D) has updated to reflect its current value.
Q:
A noncurrent liability is one that the company:
A) has owed for over one year.
B) has owed for over five years.
C) will not pay within 12 months.
D) will not pay within five years.
Q:
Which of the following would be listed as a current liability?
A) Cash
B) Notes Payable (due in two years)
C) Supplies
D) Accounts Payable
Q:
Interstate banking regulations presently allow commercial banks to acquire other banks in their region of the country, but not to expand across the nation.a. Trueb. False
Q:
Proprietary trading is generally less risky than a banks lending operations.
a. True
b. False
Q:
Which one of the following is not a current asset?
A) Cash
B) Supplies
C) Equipment
D) Prepaid Insurance
Q:
Because U.S. dollars are widely used as an international medium of exchange, the Eurodollar market is very active.
a. True
b. False
Q:
The following account balances were listed on the trial balance of Edgar Company at the end of the period: Account
Balance Accounts Payable
$30,600 Cash
48,900 Common Stock
30,000 Equipment
13,500 Land
45,000 Notes Payable
60,000 The companys trial balance is not in balance and the companys accountant has determined that the error is in the cash account. What is the correct balance in the cash account?
A) $57,900.
B) $31,500.
C) $2,100.
D) $62,100.
Q:
Bank regulators are concerned that banks may maintain a higher level of capital than they should and have therefore imposed capital requirements on them.
a. True
b. False
Q:
Daisy Companys trial balance was in balance at the end of the period and showed the following accounts: Account
Balance Accounts Payable
$20,400 Cash
41,400 Common Stock
20,000 Equipment
9,000 Land
30,000 Notes Payable
40,000 What is the balance of the credit column on Daisy Companys trial balance?
A) $160,800.
B) $80,400.
C) $60,400.
D) $60,000.
Q:
The most common way for U.S. commercial banks to expand internationally is by purchasing banks in other countries.
a. True
b. False
Q:
All of the following would be classified as current on a classified balance sheet except:
A) Common Stock
B) Cash
C) Accounts Payable
D) Supplies
Q:
In a revolving credit loan, the bank typically charges businesses a commitment fee on any unused funds.
a. True
b. False
Q:
Assume a company only entered into financing and investing activities and has prepared its journal entries and posted them to T-accounts. How would the related account balances be listed on its trial balance?
A) Credits first, followed by debits
B) Debits first, followed by credits
C) Alphabetically
D) In descending order by dollar amount
Q:
The five largest banks in the United States account for about one-tenth of all assets in U.S. banks.
a. True
b. False
Q:
Which of the following would cause a trial balance to be out of balance?
A) A transaction was recorded twice.
B) A transaction was not recorded.
C) A transaction was posted to the wrong accounts.
D) Only the credit of a transaction was recorded.
Q:
In a loan participation arrangement, normally all of the participating banks are exposed to credit (default) risk.
a. True
b. False
Q:
A trial balance:
A) ensures that all journal entries have been posted.
B) is a way to check that no mistakes have been made during the accounting cycle.
C) is a report for internal use only.
D) is a way to check that all journal entries have been posted and that no mistakes have been made during the accounting cycle.
Q:
The bank holding company structure allows more flexibility to borrow funds, issue stock, repurchase the company's own stock, and acquire other firms.
a. True
b. False
Q:
Consider the following journal entry: Equipment
10,000 Cash 4,000 Note Payable 6,000 Which of the following explanations best describes this journal entry?
A) The company buys $10,000 of equipment, pays cash of $4,000, and signs a note for $6,000.
B) The company receives $4,000 in cash and $6,000 in notes payable in exchange for selling $10,000 of equipment.
C) The company buys $10,000 of equipment, pays $4,000 cash, and promises to cancel a debt owed to the company in the amount of $6,000.
D) The company sells $10,000 of equipment, receives $4,000 in cash, and pays off $6,000 it owes on the equipment.
Q:
A commercial bank can be a lender or a borrower when using repurchase agreements and loans in the federal funds market.
a. True
b. False
Q:
Your company purchases equipment for $2 million paying $300,000 in cash and issuing $1.7 million in promissory notes. When the journal entry is posted to the related accounts:
A) $2 million will be credited and $300,000 will be debited to asset accounts; $1.7 million will be debited to liability accounts.
B) $2 million will be debited to asset accounts; $2 million will be credited to liability accounts.
C) $2 million will be debited and $300,000 will be credited to asset accounts; $1.7 million will be credited to liability accounts.
D) $2 million will be credited to asset accounts; $2 million will be debited to liability accounts.
Q:
A bank's uses of funds represent liabilities of a bank.
a. True
b. False
Q:
Protective covenants impose conditions that require the bank to provide additional loans to a borrower to protect the borrower from going bankrupt.
a. True
b. False
Q:
Purrfect Pets, Inc. makes a $10,000 payment on account. This would result in a:
A) $10,000 credit to Cash and a $10,000 credit to Accounts Payable.
B) $10,000 debit to Cash and a $10,000 debit to Accounts Payable.
C) $10,000 debit to Accounts Payable and a $10,000 credit to Cash.
D) $10,000 debit to Cash and a $10,000 credit to Accounts Payable.
Q:
A bank's sources of funds represent liabilities or equity of the bank.
a. True
b. False
Q:
A company uses $100,000 in cash to pay off $100,000 in notes payable. This would result in a:
A) $100,000 debit to Notes Payable and a $100,000 credit to Cash.
B) $100,000 credit to Cash and a $100,000 credit to Notes Payable.
C) $100,000 debit to Cash and a $100,000 credit to Notes Payable.
D) $100,000 debit to Cash and a $100,000 debit to Notes Payable.
Q:
The yield on repurchase agreements is slightly higher than the federal funds rate at any given point in time.
a. True
b. False
Q:
On January 5, Arlington Inc. purchases $23,000 of supplies; payment is not required until February 4. What action should be taken by Arlington Inc. on January 5?
A) No journal entry is required; this transaction should not be recorded until the payment is made.
B) A journal entry that includes a credit to Accounts Payable should be prepared.
C) A journal entry that includes a debit to Accounts Payable should be prepared.
D) A journal entry that includes a debit to Prepaid Expenses should be prepared.
Q:
B. Darin Company issued common stock to investors and received $50,000. Which of the following statements about this transaction is correct?
A) This is an example of a cash inflow from an investing activity.
B) The journal entry to record this transaction will include a credit to Cash.
C) This is an example of a cash outflow from a financing activity.
D) The journal entry to record this transaction will include a credit to Common Stock.
Q:
Bank rates on credit card balances are usually similar to the rate charged on business loans.
a. True
b. False
Q:
Darin Company purchased land at a cost of $15,000 and planned to use it to construct a new storage facility on the property. A short time later, the company changed its plans and sold the property to Dee Company for $15,000. Dee Company signed a note for $15,000 that is due in 60 days. The journal entry prepared by Darin Company to record the sale of the property would include which of the following?
A) Credit to Note Receivable
B) Debit to Cash
C) Credit to Land
D) Debit to Accounts Payable
Q:
Like other market interest rates, the federal funds rate moves in reaction to changes in the demand for or supply of funds or both.
a. True
b. False
Q:
Each account is assigned a number; this listing of all accounts is called a:
A) trial balance.
B) journal.
C) ledger.
D) chart of accounts.
Q:
Which of the following statements about liabilities is not correct?
A) Liabilities are amounts owed by a business.
B) Liability accounts have a normal credit balances.
C) Financing activities may affect the amount of liabilities.
D) Examples of liabilities include Notes Payable, Common Stock, and Income Tax Payable.
Q:
The operations, management, and regulation of a commercial bank are the same irrespective of the types of services offered.
a. True
b. False
Q:
Which of the following statements about transaction analysis is correct?
A) Transactions are analyzed from the standpoint of the owners.
B) All business activities are considered to be accounting transactions.
C) The transaction amount is determined for each exchange based on the cost of the items given and received.
D) A business needs journal entries only to show how transactions affect the balance sheet.
Q:
A financial institution is likely to call a callable CD before its maturity if interest rates have risen since the CD was issued.
a. True
b. False
Q:
Which of the following statements about the debit/credit framework is correct?
A) Asset and liability accounts have a normal debit balance.
B) To debit an account means to increase it.
C) Common Stock has a normal credit balance.
D) To credit an account means to decrease it.