Chapter 5 The Financial Statements of Banks and Their Principal Competitors (Rose) PDF

Chapter 05 The Financial Statements of Banks and Their Principal Competitors Fill in the Blank Questions 1. Fed funds purchased is an example of _______________________ along with Eurodollar borrowings. ________________________________________ 2. The short-term securities of the ban...

Chapter 05 The Financial Statements of Banks and Their Principal Competitors Fill in the Blank Questions 1. Fed funds purchased is an example of _______________________ along with Eurodollar borrowings. ________________________________________ 2. The short-term securities of the bank, including T-Bills and commercial paper, are often called __________________________ because they are the second line of defense to meet demands for cash. ________________________________________ 3. __________________________ is a noncash expense on the bank's income statement which allows the bank to account for future bad loans. ________________________________________ 4. __________________________ is the difference between total interest income and total interest expenses for a financial institution. ________________________________________ 5. __________________________ are the primary long-term liabilities of the bank. ________________________________________ 6. A(n) __________________________ is where the financial institution agrees to guarantee repayment of a customer's loan, which the customer has received from a third party. ________________________________________ 7. A(n) __________________________ is a short term collateralized loan. The collateral that is used generally consists of T-Bills. ________________________________________ 8. A(n) __________________________ is a deposit account which pays an interest rate competitive with money market mutual funds and which generally has limited check writing ability. ________________________________________ 9. _____________________ is the sum of all outstanding IOUs owed to the bank in the form of consumer, real estate, commercial, and agriculture loans as well as other types of credit extensions. ________________________________________ 10. A financial institution often records the value of its assets and liabilities at ____________ which is the historical cost of the asset. ________________________________________ 11. The principal types of __________________________ include fee income, income from fiduciary activities, and service charges on deposits. ________________________________________ 12. The __________________________ shows the amount of revenues received and expenses incurred over a specific time period. ________________________________________ 13. The __________________________ lists the assets, liabilities and equity capital held by the bank on a given date. ________________________________________ 14. ______________ is labeled "Accounting for Derivative Instruments and Hedging Activities". ________________________________________ 15. ________________ labeled "Accounting for Derivative Instruments and Hedging Activities" and its recent amendments, __________, are designed to make derivatives more publicly visible on corporate financial statements. ________________________________________ 16. Temporarily buying and selling securities by a securities firm in a thinly traded market so as to influence the price is known as ________________. ________________________________________ 17. The activity of manipulating the financial statements to artificially enhance the banks financial strength is known as __________________. ________________________________________ 18. ________________ is an asset category which includes direct and indirect investment in real estate. These are properties obtained for compensations for nonperforming loans. ________________________________________ 19. __________ consists of interest income received on loans from customers that has not yet been earned by the bank under accrual accounting methods. ________________________________________ 20. __________ can be held by individuals and nonprofit institutions, bear interest and permit drafts to be written against the account to pay third parties. ________________________________________ 21. In the worldwide banking system, __________ represent transferable time deposits in a variety of currencies and are often the principal source of short term borrowings by banks. ________________________________________ 22. One part of __________ arises from fees charged for ATM and POS transactions. ________________________________________ 23. Fees that arise from a financial firm's trust activities, fees for managing a corporation's interest and dividend payments, and fees for managing corporate or individual retirement plans are all included in the category of fees arising from __________. ________________________________________ 24. Checking account maintenance fees and overdraft fees are included in the noninterest income account under _________. ________________________________________ Multiple Choice Questions 50. Each of the following falls into the category of bank assets except: A. loans. B. investment securities. C. demand deposits. D. cash and due from banks.  E. other assets. 51. Banks generate their largest portion of income from: A. loans. B. short-term investments. C. demand deposits. D. trading account gains & fees. E. certificates of deposits. 52. Each of the following typically falls into the category of loans except: A. real estate. B. consumer. C. commercial and industrial (business). D. agricultural. E. municipal. 53. Which of the following adjustments are made to gross loans and leases to obtain net loans and leases? A. Loan and lease loss allowance is added to gross loans. B. Unearned income is subtracted from gross interest received. C. Investment income is added to gross interest received. D. Loan and lease loss allowance and unearned income is subtracted from gross loans.  E. Loan and lease loss allowance is subtracted from gross loans and investment income is added to gross interest received. 54. An example of a contra-asset account is: A. loan and lease loss allowance. B. trading account assets. C. buildings and equipment. D. revenue bonds. E. provision for loan loss. 55. The noncash expense item on a bank's Report of Income designed to shelter a bank's current earnings from taxes and to help prepare for bad loans is called: A. short-term debt interest. B. noninterest expense. C. provision for taxes. D. provision for possible loan losses. E. None of the options are correct. 56. A financial institution's bad-debt reserve, as reported on its balance sheet, is called: A. unearned income or discount. B. allowance for possible loan losses. C. intangible assets. D. customer liability on acceptances.  E. None of the options are correct. 57. When a bank serves as a security dealer for certain kinds of securities (mainly federal, state, and local government obligations) the value of these securities is usually recorded in what account on a bank's Report of Condition? A. Investment securities B. Taxable and tax-exempt assets C. Trading account assets D. Secondary reserves E. None of the options are correct. 60. Nonperforming loans are credits on which any scheduled loan repayments and interest payments are past due for more than: A. 30 days. B. 60 days. C. 90 days. D. 180 days. E. None of the options are correct. 62. The use of fixed assets, rather than financial assets, in order to increase the operating earnings is known as: A. plant and equipment investment. B. financial leverage.  C. operating leverage. D. nondeposit capital. E. None of the options are correct. 63. Banks depend heavily upon borrowed funds supplied by customers with little owners' capital invested. This means that banks make heavy use of: A. financial leverage. B. capital restructuring. C. operating leverage. D. margin borrowing. E. None of the options are correct. 65. The common banking practice of selling those investment securities that have appreciated in order to reap a capital gain and holding onto those securities whose prices have declined is known as: A. gains trading. B. performance banking. C. loss control trading. D. selective portfolio management. E. None of the options are correct. 66. Noninterest revenue sources for a bank are called: A. commitment fees on loans.  B. fee income. C. supplemental income. D. noninterest margin. E. None of the options are correct. 67. Large U.S. banks must use which of the methods listed below to determine their provision for loan loss expense? A. Experience method B. Reserve method C. Specific charge-off method D. Historical cost method E. None of the options are correct. 68. A bank's temporary lending of excess reserves to other banks is labeled on the balance sheet as: A. fed funds purchased. B. fed funds sold. C. money market deposits. D. securities purchased for resale. E. None of the options are correct. 69. A bank sells shares of its common stock with a par value of $100 for $200 in the market. Which two accounts on the bank's balance sheet are going to be affected? A. Retained earnings and surplus accounts B. Subordinated notes and debentures and commons stock outstanding accounts C. Retained earnings and common stock outstanding accounts D. Common stock outstanding and surplus accounts E. Only the common stock outstanding account 74. Which of the following financial statements shows the revenues and expenses of a bank over a set period of time? A. The Statement of Stockholders Equity B. The Funds-Flow Statement C. The Report of Financial Condition D. The Report of Income E. None of the options are correct. 75. Which of the following accounts is also called the bank's primary reserves? A. Cash and deposits due from banks B. Investment securities C. Trading account securities D. Fed funds sold E. None of the options are correct. 76. Which of the following assets is the largest asset item on the bank's balance sheet? A. Securities B. Cash C. Loans and leases D. Bank premises E. None of the options are correct. 79. Which of the following most accurately describes the principal type(s) of bank noninterest income? A. Fees from fiduciary transactions B. Fees from deposit transactions C. Fees from securities transactions D. Fees from additional noninterest income E. All of the options are correct. 104.The largest expense item often observed in the financial statement of the banks is: A. personnel cost. B. premises and equipment cost. C. interest on borrowed funds. D. provision for loan loss. E. employee benefits. 106.The beginning balance in the allowance for loan loss account for Synopsis Bank is $500 million. The banking firm charges $2 million for provision for loan losses. Synopsis Bank will report: A. $502 million as adjusted allowance for loan losses. B. $498 million as noninterest expense. C. $2 million as allowance for loan losses. D. $502 million as provision for loan loss expense. E. $2 million as adjusted allowance for loan losses. 108.Which of the following asset items may include deposits placed with correspondent deposits? A. Savings deposit B. Trading account assets C. NOW accounts D. Allowance for loan losses E. Cash and due from depository institutions 110.Securities purchased to provide short-term profits from short-term price movements are reported as: A. investment securities. B. trading account assets. C. reverse repurchase agreements. D. due from depository institutions. E. federal funds. Chapter 05 The Financial Statements of Banks and Their Principal Competitors Answer Key Fill in the Blank Questions 1. Fed funds purchased is an example of _______________________ along with Eurodollar borrowings. nondeposit borrowings 2. The short-term securities of the bank, including T-Bills and commercial paper, are often called __________________________ because they are the second line of defense to meet demands for cash. secondary reserves 3. __________________________ is a noncash expense on the bank's income statement which allows the bank to account for future bad loans. Provision for loan losses 4. __________________________ is the difference between total interest income and total interest expenses for a financial institution. Net interest income 5. __________________________ are the primary long-term liabilities of the bank. Subordinated notes and debentures 6. A(n) __________________________ is where the financial institution agrees to guarantee repayment of a customer's loan, which the customer has received from a third party. standby credit agreement 7. A(n) __________________________ is a short term collateralized loan. The collateral that is used generally consists of T-Bills. repurchase agreement 8. A(n) __________________________ is a deposit account which pays an interest rate competitive with money market mutual funds and which generally has limited check writing ability. money market deposit account 9. 10. A financial institution often records the value of its assets and liabilities at ____________ which is the historical cost of the asset. original cost 11. The principal types of __________________________ include fee income, income from fiduciary activities, and service charges on deposits. noninterest income 12. The __________________________ shows the amount of revenues received and expenses incurred over a specific time period. Report of Income (income statement) 13. The __________________________ lists the assets, liabilities and equity capital held by the bank on a given date. Report of Condition (balance sheet) 16. Temporarily buying and selling securities by a securities firm in a thinly traded market so as to influence the price is known as ________________. "painting the tape" 17. The activity of manipulating the financial statements to artificially enhance the banks financial strength is known as __________________. "window dressing" or "creative accounting" 19. __________ consists of interest income received on loans from customers that has not yet been earned by the bank under accrual accounting methods. Unearned income 20. __________ can be held by individuals and nonprofit institutions, bear interest and permit drafts to be written against the account to pay third parties. NOW accounts 22. One part of __________ arises from fees charged for ATM and POS transactions. noninterest income 24. Checking account maintenance fees and overdraft fees are included in the noninterest income account under _________. service charges on deposit accounts Multiple Choice Questions 50. Each of the following falls into the category of bank assets except: A. loans. B. investment securities. C. demand deposits. D. cash and due from banks. E. other assets. 51. Banks generate their largest portion of income from: A. loans. B. short-term investments. C. demand deposits. D. trading account gains & fees. E. certificates of deposits. 52. Each of the following typically falls into the category of loans except: A. real estate. B. consumer. C. commercial and industrial (business). D. agricultural. E. municipal 53. Which of the following adjustments are made to gross loans and leases to obtain net loans and leases? A. Loan and lease loss allowance is added to gross loans. B. Unearned income is subtracted from gross interest received. C. Investment income is added to gross interest received. D. Loan and lease loss allowance and unearned income is subtracted from gross loans.  E. Loan and lease loss allowance is subtracted from gross loans and investment income is added to gross interest received. 54. An example of a contra-asset account is: A. loan and lease loss allowance. B. trading account assets. C. buildings and equipment. D. revenue bonds. E. provision for loan loss. 55. The noncash expense item on a bank's Report of Income designed to shelter a bank's current earnings from taxes and to help prepare for bad loans is called: A. short-term debt interest. B. noninterest expense. C. provision for taxes. D. provision for possible loan losses. E. None of the options are correct. 56. A financial institution's bad-debt reserve, as reported on its balance sheet, is called: A. unearned income or discount. B. allowance for possible loan losses. C. intangible assets. D. customer liability on acceptances. E. None of the options are correct. 57. When a bank serves as a security dealer for certain kinds of securities (mainly federal, state, and local government obligations) the value of these securities is usually recorded in what account on a bank's Report of Condition? A. Investment securities B. Taxable and tax-exempt assets C. Trading account assets D. Secondary reserves E. None of the options are correct. 60. Nonperforming loans are credits on which any scheduled loan repayments and interest payments are past due for more than: A. 30 days. B. 60 days. C. 90 days. D. 180 days. E. None of the options are correct. 62. The use of fixed assets, rather than financial assets, in order to increase the operating earnings is known as: A. plant and equipment investment. B. financial leverage. C. operating leverage. D. nondeposit capital. E. None of the options are correct. 63. Banks depend heavily upon borrowed funds supplied by customers with little owners' capital invested. This means that banks make heavy use of: A. financial leverage. B. capital restructuring. C. operating leverage. D. margin borrowing. E. None of the options are correct. 65. The common banking practice of selling those investment securities that have appreciated in order to reap a capital gain and holding onto those securities whose prices have declined is known as: A. gains trading. B. performance banking. C. loss control trading. D. selective portfolio management. E. None of the options are correct. 66. Noninterest revenue sources for a bank are called: A. commitment fees on loans. B. fee income. C. supplemental income. D. noninterest margin. E. None of the options are correct. 67. Large U.S. banks must use which of the methods listed below to determine their provision for loan loss expense? A. Experience method B. Reserve method C. Specific charge-off method D. Historical cost method E. None of the options are correct. 68. A bank's temporary lending of excess reserves to other banks is labeled on the balance sheet as: A. fed funds purchased. B. fed funds sold. C. money market deposits. D. securities purchased for resale. E. None of the options are correct. 69. A bank sells shares of its common stock with a par value of $100 for $200 in the market. Which two accounts on the bank's balance sheet are going to be affected? A. Retained earnings and surplus accounts B. Subordinated notes and debentures and commons stock outstanding accounts C. Retained earnings and common stock outstanding accounts D. Common stock outstanding and surplus accounts E. Only the common stock outstanding account 74. Which of the following financial statements shows the revenues and expenses of a bank over a set period of time? A. The Statement of Stockholders Equity  B. The Funds-Flow Statement C. The Report of Financial Condition D. The Report of Income E. None of the options are correct. 75. Which of the following accounts is also called the bank's primary reserves? A. Cash and deposits due from banks B. Investment securities C. Trading account securities D. Fed funds sold E. None of the options are correct. 76. Which of the following assets is the largest asset item on the bank's balance sheet? A. Securities B. Cash C. Loans and leases D. Bank premises E. None of the options are correct. 79. Which of the following most accurately describes the principal type(s) of bank noninterest income? A. Fees from fiduciary transactions B. Fees from deposit transactions C. Fees from securities transactions D. Fees from additional noninterest income E. All of the options are correct. 104. The largest expense item often observed in the financial statement of the banks is: A. personnel cost. B. premises and equipment cost. C. interest on borrowed funds. D. provision for loan loss. E. employee benefits. 106. The beginning balance in the allowance for loan loss account for Synopsis Bank is $500 million. The banking firm charges $2 million for provision for loan losses. Synopsis Bank will report: A. $502 million as adjusted allowance for loan losses. B. $498 million as noninterest expense. C. $2 million as allowance for loan losses. D. $502 million as provision for loan loss expense. E. $2 million as adjusted allowance for loan losses. 108. Which of the following asset items may include deposits placed with correspondent deposits? A. Savings deposit B. Trading account assets C. NOW accounts D. Allowance for loan losses E. Cash and due from depository institutions 110. Securities purchased to provide short-term profits from short-term price movements are reported as: A. investment securities. B. trading account assets. C. reverse repurchase agreements. D. due from depository institutions. E. federal funds.