Deck 12: Special Industries: Banks, Utilities, Oil and Gas, Transportation, Insurance, Real Estate Companies

Question 1

Which of the following is most likely the largest expense of a bank?

A)Income taxes
B)Occupancy expense
C)Salaries
D)Interest on loans
E)Interest on deposits

Answer 1

E

Question 2

The operating ratio of Cross America Airlines has increased.Which of the following could not explain this rise?

A)Operating revenues have increased more slowly than expenses.
B)Salary costs have risen substantially.
C)Operating revenues have increased with stable operating expenses.
D)Dues costs have risen substantially.
E)None of the answers are correct.

Answer 2

C

Question 3

Which of the following organizations does not require that banks report to it?

A)Internal Revenue Service
B)Federal Reserve System
C)Comptroller of the Currency
D)Federal Deposit Insurance Corporation
E)Interstate Commerce Commission

Answer 3

E

Question 4

In analyzing the borrowing position of a utility, which of the following is primary?

A)Liquidity
B)Ability to earn a profit
C)Return to shareholders
D)Long-term debt capacity
E)Utilization of current assets

Question 5

Accounting for regulated utilities, banks, and transportation firms is similar in that:

A)all are monopolies.
B)all report property, plant, and equipment first on the balance sheet.
C)all are controlled by the Interstate Commerce Commission.
D)all carry heavy inventory.
E)all utilize some form of uniform accounting system.

Question 6

Which of the following is not an asset of a bank?

A)Bank building
B)Accrued interest receivable
C)Savings deposits
D)Loans
E)Investment securities

Question 7

Which of the following is not a type of earning asset for a bank?

A)Cash
B)Loans
C)Leases
D)Investment securities
E)Money market assets

Question 8

A characteristic common to banks, utilities, and transportation is that they:

A)are all government owned.
B)are not subject to the rules of the FASB.
C)are monopolies.
D)each have a uniform system of accounts established by a federal regulatory agency.
E)never go bankrupt.

Question 9

Total deposits times capital is:

A)a type of interest coverage ratio.
B)a profit measure.
C)a type of debt to equity ratio.
D)similar to net working capital.
E)a type of asset to liability ratio.

Question 10

The operating ratio for a railroad is a measure of:

A)cost control.
B)liquidity.
C)earnings to investors.
D)borrowing ability.
E)liquidity.

Question 11

The principal revenue source for a bank typically is:

A)gain on sale of real estate.
B)sales.
C)dividend income.
D)interest income.
E)interest expense.

Question 12

For a utility, funded debt to operating property is a measure of:

A)profitability.
B)return to shareholders.
C)debt coverage.
D)liquidity.
E)asset turnover.

Question 13

Data per passenger-mile is often used by transportation companies to analyze:

A)capacity.
B)revenue.
C)borrowing ability.
D)earnings per share.
E)leverage.

Question 14

Which of the following have a balance sheet similar in format to a manufacturing firm?

A)Transportation
B)Banks
C)Utilities
D)Transportation and utilities
E)Transportation and banks

Question 15

On the balance sheet of a bank, what is the best description of the nature of checking accounts of customers?

A)Short-term asset
B)Long-term asset
C)Short-term liability
D)Long-term liability
E)Owners' equity

Question 16

Interest margin to average total assets measures:

A)the balance between earning and nonearning assets.
B)management's ability to control the spread between interest income and interest expense.
C)the ability to borrow successfully.
D)the proportion of debt to equity.
E)the return on owner's investment.

Question 17

Which of the following will not cause the percent earned on operating property of a utility to fall?

A)Sale of a fully depreciated asset at a loss
B)Building a new plant
C)Increase in operating expenses
D)Decrease in borrowing and interest expense
E)Decrease in revenue

Question 18

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.
B)Most utility commissions allow no construction work in progress or only a small amount in the rate base.
C)In the long run, everybody pays for inefficiency and excess capacity because disallowed costs are a risk that can drive the stock price down and interest rates up for the utility.
D)Costs related to construction work in progress that are disallowed are, in effect, charged to the stockholders.
E)Future income will not include a return on disallowed costs.

Question 19

The first balance sheet asset for a regulated utility is:

A)cash.
B)receivables.
C)inventory.
D)plant.
E)investments.

Question 20

The largest asset for airlines will usually be:

A)accounts receivable.
B)inventory of spare parts.
C)investment in subsidiaries.
D)flight equipment.
E)ground equipment.

Question 21

The provision for loan losses for a bank is the same as the allowance for doubtful accounts.

Question 22

Loans to deposits for a bank is a type of debt coverage ratio.

Question 23

All banks belong to a bank holding company.

Question 24

Uniformity of accounting for interstate electric companies is prescribed by the Interstate Commerce Commission.

Question 25

A distinguishing factor about utilities is that generally their services are not duplicated by another firm.

Question 26

In order for ratio analysis to be meaningful for a bank holding company, a large portion of the services should be bank-related.

Question 27

For a bank, loans are not earning assets.

Question 28

The loan loss coverage ratio for a bank helps determine the asset quality.

Question 29

There are basically four types of insurance organizations.Which of the following is not one of these four types?

A)Group
B)Stock companies
C)Mutual companies
D)Fraternal benefit societies
E)Assessment companies

Question 30

Interest margin is the spread between interest income and net income for a bank.

Question 31

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?

A)Insurance is a highly regulated industry.
B)The insurance industry has substantial competition.
C)The accounting environment likely contributes to the relatively low market price for insurance company stocks.
D)The nature of the industry leads to standards that provide for much judgment and possible manipulation of reported profit.
E)Insurance companies typically have a high return on common equity.

Question 32

Under the full-cost approach to oil and gas accounting:

A)costs related to successful efforts are expensed and others capitalized.
B)cost related to successful efforts are capitalized and others expensed.
C)all costs are expensed as incurred.
D)all costs are capitalized as incurred.
E)only the cost of buildings and equipment are capitalized.

Question 33

For a bank, loans to customers are assets.

Question 34

Equity capital to total assets for a bank is a measure of leverage.

Question 35

The principal asset of a bank is property and equipment.

Question 36

The report of income and dividends is the same as a balance sheet for a bank.

Question 37

Which of the following will cause operating revenues for a transportation firm to vary?

A)Difference in rates
B)Classification of traffic
C)Volume of traffic carried
D)Distance traffic is transported
E)All of the answers are correct.

Question 38

Banks operate either under a federal or state charter.

Question 39

Banks are always restricted from operating interstate.

Question 40

The loan loss coverage ratio is computed by dividing the provision for loans by net loans.

Question 41

Monitoring cash flow can be particularly important when following an oil or gas company.

Question 42

A profitable utility will maintain a high operating ratio.

Question 43

The passenger load factor measures the percent that a carrier is filled, based on capacity.

Question 44

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.

Question 45

Inventory turnover is a valuable tool for analyzing a railroad.

Question 46

Large oil and gas companies tend to select a variation of the full-cost method to account for exploration and production costs.

Question 47

The value of fixed rate mortgages could decline substantially if interest rates decrease.

Question 48

Most regulated utilities have very high receivables.

Question 49

A review of the disclosure of allowance for loan losses for a bank may indicate significant losses charged.

Question 50

A good statistic for analysis of asset utilization for a bus line is the passenger load factor.

Question 51

For a regulated electric utility, the account allowance for equity funds used during construction represents the cost of borrowed funds that are used for construction.

Question 52

The successful efforts method places only exploration and production costs of successful wells on the balance sheet under property, plant, and equipment.

Question 53

In the ratio funded debt to operating property for a utility, construction in progress is a component of operating property.

Question 54

In the case of air carriers, the cost of goods sold section of the income statement looks similar to that of a steel manufacturer.

Question 55

A basic issue, still unresolved, relates to whether oil and gas exploration cost should be expensed or capitalized.

Question 56

Real estate companies contend that conventional accounting, recognizing depreciation but not the underlying value of the property, misleads investors.

Question 57

The financial statement format for regulated firms will never differ from those of manufacturers and retailers; the format is prescribed by the FASB.

Question 58

Operating revenue to operating property for a railroad is a turnover type ratio.

Question 59

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.

Question 60

For a regulated utility, the first item listed under liabilities and equity is capitalization.

Question 61

The balance sheets of insurance companies are not classified by current assets and current liabilities.

Question 62

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.

Question 63

Statutory accounting has emphasized the balance sheet in its concern for protecting the policyholders by focusing on the financial solvency of the insurance corporation.

Question 64

The stockholders' equity section of an insurance company will usually appear similar to the stockholders' equity section of other industries.

Question 65

It is generally perceived that utilities that have cash flow problem will not be increasing their dividend.

Question 66

Regulation of insurance companies started at the federal level.

Question 67

Generally accepted accounting principles for insurance companies developed much sooner than statutory accounting practices.

Question 68

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.

Question 69

Deferred policy acquisition costs represent the cost of obtaining policies.Under statutory accounting practices, these costs are charged to expense as they are incurred.

Question 70

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.