Chapter 5

What risk does poor credit quality pose to the bank?

What is a potential consequence of selling consistently to questionable accounts?

How can fictitious receivables impact advances by the bank?

What is the risk associated with unbilled receivables from a bank's perspective?

How do bonded receivables differ from traditional receivables for a bank?

What is the primary focus of the review of the client's management information systems (MIS) related to receivables?

When evaluating the client's bad debt expense practices, what is the examiner primarily interested in determining?

If the client uses the allowance method, what is the examiner primarily interested in reviewing?

When evaluating the client's credit and collection practices, what does the examiner consider?

What is the examiner primarily interested in reviewing when it comes to the timeliness of payment and credit memo posting?

What is the primary purpose of reconciling the client's aging to the general ledger and financial statements?

What might a credit adjustment to the receivables by the client's outside accountants indicate?

What could discrepancies between the company's internal records and reports filed with the bank potentially indicate?

What is the primary purpose of verifying the aging?

What steps are involved in verifying the aging?

What type of documentation is inspected to verify that the shipment took place the same day or one day before the invoice date?

In an examination, why is it important to identify customer concentrations?

What is a key concern when reviewing a client's credit approval procedures?

What may be indicated if an invoice lacks proof of order such as a purchase order or a note in the file?

Why is verifying that quantities shipped match those marked on the invoice and bill of lading important?

What is the primary reason why verification of tax payments is important, according to the text?

What is the purpose of reviewing the client's A/P aging as part of the payables/taxes examination procedures?

What is the purpose of identifying payables concentrations as part of the payables/taxes examination procedures?

What is the purpose of identifying contra accounts as part of the payables/taxes examination procedures?

What is the purpose of identifying ineligible inventory categories as part of the payables/taxes examination procedures?

What is the primary purpose of conducting periodic inspections of collateral as part of the payables/taxes examination procedures?

What is the priority lien that the bonding agent will have if they complete the project?

What is the purpose of guaranteed sales contracts between clients and retailers?

Why are intercompany receivables considered questionable collateral?

What is the purpose of reconciling and verifying the accounts receivable aging?

Why are guaranteed sales considered weak collateral support for advances?

What is the primary purpose of conducting periodic inspections of collateral?

What is the primary reason for the bank to be concerned about the value of intercompany receivables?

What is the primary purpose of the receivables examination procedures?

What is the primary reason for the bank to be concerned about guaranteed sales contracts?

What is the primary purpose of the receivables examination procedures outlined in the text?

In examining accounts receivable, which of the following practices would be a significant red flag for potential overstatement of collateral value?

When examining a borrower's cash collateral account, what should the examiner verify regarding deposit activity?

Based on the information provided, which type of receivable would be considered the LEAST risky from a collateral valuation perspective?

What is a critical consideration when evaluating the value of equipment as a secondary repayment source?

When assessing the value of plant and equipment, what factor plays a significant role in determining collateral value?

Why is it important to know whether facilities housing equipment are owned or leased when evaluating collateral?

In equipment appraisal, why is it crucial to consider how much of the equipment's useful life has already expired?

When evaluating plant and equipment for operational adequacy, what is a key question to address?

Which factor is likely to increase the liquidation value of equipment used as collateral?

Why might a two-year-old machine with a service life of three years be less valuable as collateral compared to a five-year-old machine with a service life of 20 years?

If equipment is permanently or semipermanently affixed to real property, what issue might arise concerning its liquidation?

What characteristic of equipment makes it easily identifiable and helps in determining specific collateral?

Which type of equipment is less susceptible to default when financed as per the text?

How does the presence of an active secondary market impact the estimation of liquidation value for equipment?

How does a surplus of equipment in a customer's industry affect the equipment's value?

Why is it important to consider current industry trends when evaluating the value of equipment?

How do consolidations and bankruptcies in an industry affect the value of equipment used in production?

What role do appraiser credentials play when reviewing an equipment appraisal?

Which of the following factors is most important to consider when evaluating the collateral value of equipment?

When assessing the collateral value of equipment, what is the primary concern regarding its portability?

How does the age of equipment typically impact its collateral value?

In evaluating the collateral value of equipment, which of the following factors is least important?

Which of the following types of equipment would likely have the highest collateral value, according to the information provided?

Which of the following is NOT a factor that can make rollover expenses difficult to quantify accurately?

What is the main purpose of using a discounted cash flow analysis in the income capitalization approach?

Which of the following is NOT a component of the Net Operating Income (NOI) calculation?

What is the primary purpose of applying a capitalization rate (cap rate) to the Net Operating Income (NOI) in the income capitalization approach?

Which of the following is a key factor that the capitalization rate (cap rate) is correlated to?

In a triple net (NNN) lease, which of the following expenses are typically passed on to the tenant?

What is the purpose of including a reserve for replacement expenses in an appraisal?

In the context of rent analysis, what is the likely purpose of including a 'cushion' in a gross lease rate?

Which of the following expenses is NOT typically included in rollover expenses?

In the context of rent analysis, what is the primary purpose of carefully reviewing the expense sharing arrangement in subject and comparable leases?

According to the passage, which of the following is a key factor to consider when establishing a relevant vacancy rate for a property?

The passage discusses how operating expenses are typically expressed. Which of the following is the LEAST common way that operating expenses are presented?

According to the passage, which of the following is a key characteristic of operating expenses for a property?

The passage discusses the concept of 'vacancy' for a property. Which of the following is the LEAST likely reason for a property to have vacant space?

How does the passage suggest the vacancy factor should be applied in calculating a property's effective gross income (EGI)?

In the income capitalization approach, what is the primary purpose of applying a capitalization rate (cap rate) to the Net Operating Income (NOI)?

In the context of real estate valuation, what is the primary purpose of the band of investment technique?

What is the theoretical basis for the weighted average cost of capital (WACC) approach in real estate valuation?

In the context of real estate valuation, what is the primary purpose of the loan constant?

In the practical application of the income capitalization approach, how is the vacancy factor typically incorporated into the Net Operating Income (NOI) calculation?

In the weighted average cost of capital (WACC) approach, what is the primary purpose of incorporating the cost of debt and cost of equity components?

In the band of investment technique, what is the primary purpose of the mortgage constant?

In the income capitalization approach, what is the primary theoretical justification for using the loan constant to calculate periodic mortgage payments?

In the weighted average cost of capital (WACC) approach, how is the required rate of return for the equity component typically determined?

In the practical application of the income capitalization approach, what is the primary consideration when selecting an appropriate capitalization rate (cap rate) for a property?