CH 12 MC
The regulated utility is building into the cost base an amount for an assumed rate of return on equity funds by increasing the balance sheet account (Construction Work in Progress) for an assumed rate of return on equity funds.
T
The stockholders' equity section of an insurance company will usuall y appear similar to the stockholders' equity section of other industries.
T
The succe ssful efforts method places only exploration and production costs of successful wells on the balance sheet under property, plant, and equipment.
T
24. Insurance companies tend to have a stock market price at a discount to the average market price (price/earnings ratio). Which of the following is not a likely reason for this relatively low market value?
e. Insurance companies typically have a high return on common equity.
5. Which of the following organizations does not require that banks report to it?
e. Interstate Commerce Commission
22. Which of the following will cause operating revenues for a transportation firm to vary?
e. all of the answers are correct
12. Accounting for regulated utilities, banks, and transportation firms is similar in that:
e. all utilize some form of uniform accounting system
For a regulated electric utility, t he account allowance for equity funds used during construction represents the cost of borrowed funds that are used for construction.
F
Generally accepted accounting principles for insurance companies developed much sooner than statutory accounting practices.
F
In the case of air carriers, the cost of g oods sold section of the income statement looks similar to that of a steel manufacturer.
F
Interest margin is the spread between interest income and net income for a bank.
F
Inventory turnover is a valuable tool for analyzing a railroad.
F
Large oil and gas companies tend to select a variation of the full - cost method to account for exploration and production costs.
F
Most regulated utilities have very high receivables.
F
Regulation of insurance companies start ed at the federal level.
F
The financial statement format for regulated firms will never differ from those of manufacturers and retailers; the format is prescribed by the FASB.
F
The loan loss coverage ratio is computed by dividing the provision for loans by net loans.
F
The principal asset of a bank is property and equipment.
F
The provision for loan losses for a bank is the same as the allowance for doubtful accounts.
F
The report of income and dividends is the same as a balance sheet for a bank.
F
The value of fixed rate mortgag es could decline substantially if interest rates decrease.
F
Uniformity of accounting for interstate electric companies is prescribed by the Interstate Commerce Commission.
F
The manner of recognizing revenue on insurance contracts is unique for the insurance industry. In general, the duration of the contract governs the revenue recognition .
T
The passenger load factor measures the percent that a carrier is filled, based on capacity.
T
A profitable utility will maintain a high operating ratio.
F
All banks belong to a bank holding company.
F
Banks are always restricted from operating interstate.
F
Electric utilities that have substantial construction work in progress are usually viewed as being less risky investments than electric utilities that do not have substantial construction work in progress.
F
For a bank, loans are not earning assets.
F
A basic issue, sti ll unresolved, relates to whether oil and gas exploration cost should be expensed or capitalized.
T
A distinguishing factor about utilities is that generally their services are not duplicated by another firm.
T
A good statistic for analysis of asset utilization for a bus line is the passenger load factor.
T
A review of the disclosure of allowance for loan losses for a bank may indicate significant losses charged.
T
A review of the assets of a bank may indicate that the bank has a substantial investment in long - term bonds. Such an investment could reflect substantial risk if interest rates increase.
T
Banks operate either under a federal or state charter.
T
Deferred policy acquisition costs represent the cost of obtaining policies. Under statutory accounting practices, these costs are charged to expense as they are incurred .
T
Equity capital to total assets for a bank is a measure of leverage.
T
For a bank, loans to customers are assets.
T
For a regulated utility, the first item listed under liabilities and equity is capital ization .
T
For insurance companies, unrealized gains and losses, not recognized on the income statement, will be recorded in the account accumulated other comprehensive income.
T
In order for ratio analysis to be meaningful for a bank holding company, a large portion of the services should be bank - related.
T
In the ratio funded debt to operating property for a utility, construction in progress is a component of operating property.
T
Insurance companies provide two types of services. One service is an identified contract service — mortality protection or loss protection. The second service consists of investment management service.
T
It is generally perceived that utilities that have cash flow problem will not be increasing their dividend.
T
Loans to deposits for a bank is a type of debt coverage ratio.
T
Monitoring cash flow can be particularly important when following an oil or gas company.
T
Operating revenue to operating property for a railroad is a turnover type ratio.
T
Real estate companies contend that conventional accounting, recognizing depreciation but not the underlying value of the property, misleads investors.
T
Statutory accounting has emphasized the balance sheet in its concern for protecting the policyholders by focusing on the financial solvency of the insurance corporation.
T
The balance sheets of insurance companies are not classified by current assets and current liabilities.
T
The loan loss coverage ratio for a bank helps determine the asset quality.
T
10. Which of the following is not true for a regulated electric utility that has construction work in progress?
a. The political climate of the utility commission that will be ruling on the construction work in progress costs is not an issue to be considered.
8. Which of the following is not a type of earning asset for a bank?
a. cash
19. The operating ratio for a railroad is a measure of:
a. cost control
23. There are basically four types of insurance organizations. Which of the following is not one of these four types?
a. group
16. Which of the following have a balance sheet similar in format to a manufacturing firm?
a. transportation
9. Interest margin to average total assets measures:
b. management's ability to control the spread between interest income and interest expense
20. Data per passenger-mile is often used by transportation companies to analyze:
b. revenue
17. The operating ratio of Cross America Airlines has increased. Which of the following could not explain this rise?
c. Operating revenues have increased with stable operating expenses.
4. Total deposits times capital is:
c. a type of debt to equity ratio
14. For a utility, funded debt to operating property is a measure of:
c. debt coverage
3. Which of the following is most likely the largest expense of a bank?
c. salaries
2. Which of the following is not an asset of a bank?
c. savings deposits
6. On the balance sheet of a bank, what is the best description of the nature of checking accounts of customers ?
c. short-term liability
21. Under the full-cost approach to oil and gas accounting:
d. all costs are capitalized as incurred
15. Which of the following will not cause the percent earned on operating property of a utility to fall?
d. decrease in borrowing and interest expense
1. A characteristic common to banks, utilities, and transportation is that they:
d. each have a uniform system of accounts established by a federal regulatory agency
18. The largest asset for airlines will usually be:
d. flight equipment
7. The principal revenue source for a bank typically is:
d. interest income
13. In analyzing the borrowing position of a utility, which of the following is primary?
d. long-term debt capacity
11. The first balance sheet asset for a regulated utility is:
d. plant
