chapter 5 test

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Nonperforming loans are credits on which any scheduled loan repayments and interest payments are past due for more than:

90 days

Fee income arising from fiduciary transactions include all of the following except:

A. fees for checking account maintenance.

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.

When a loan is considered uncollectible, the bank's accounting department will write (charge) it off the books by reducing the ______ and the ______ accounts. Which choice below correctly fills in the blanks in the preceding sentence?

ALL, gross loans

A bank's temporary lending of excess reserves to other banks is labeled on the balance sheet as:

B. fed funds sold.

Securities purchased to provide short-term profits from short-term price movements are reported as:

B. trading account assets.

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?

C. Trading account assets

the largest expense item often observed in the financial statement of the banks is:

C. interest on borrowed funds.

Which of the following accounts is also called the bank's primary reserves?

Cash and deposits due from banks

Which of the following asset items may include deposits placed with correspondent deposits?

Cash and due from depository institutions

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?

Common stock outstanding and surplus accounts

The available-for-sale securities are shown on the:

D. Report of Condition at fair market value.

Which of the following most accurately describes the principal type(s) of bank noninterest income?

E. All of the options are correct.

___________ is calculated by deducting noninterest expense and provision for loan losses from noninterest income.

E. Net noninterest income

Each of the following typically falls into the category of loans except

E. municipal.

Which of the following adjustments are made to gross loans and leases to obtain net loans and leases?

Loan and lease loss allowance and unearned income is subtracted from gross loans.

Which of the following assets is the largest asset item on the bank's balance sheet

Loans and leases

What financial-service industry category is second to the banking industry in total financial assets held?

Mutual funds

Large U.S. banks must use which of the methods listed below to determine their provision for loan loss expense?

Specific charge-off method

Which of the following financial statements shows the revenues and expenses of a bank over a set period of time?

The Report of Income

A financial institution's bad-debt reserve, as reported on its balance sheet, is called:

allowance for possible loan losses.

The account that is built up by annual noncash expense deductions and is subtracted from Gross Loans on the Report of Condition is:

allowance for possible loan losses.

Each of the following falls into the category of bank assets except:

demand deposits.

Noninterest revenue sources for a bank are called

fee income.

Banks depend heavily upon borrowed funds supplied by customers with little owners' capital invested. This means that banks make heavy use of

financial leverage.

If writing off a large loan reduces the balance in the allowance for loan losses account too much, the principal regulatory agency

increases the provision for loan loss deduction

FASB Rule 115 focuses primarily on:

investments in marketable securities

An example of a contra-asset account is:

loan and lease loss allowance.

Banks generate their largest portion of income from:

loans.

One-time-only transactions that often involve sale of financial assets or real property pledged as collateral behind a loan and upon which the bank has foreclosed, affect a bank's account known as:

nonrecurring sales of assets

The use of fixed assets, rather than financial assets, in order to increase the operating earnings is known as:

operating leverage.

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:

provision for possible loan losses.


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