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Financial Statement Analysis by Charles H Gibson
MCQs with Answers Chapter # 12 Special Companies
P 12-7: Required Answer the following multiple-choice questions related to insurance financial reporting:
a. Which of the following does not represent a basic type of insurance organization?
1. Stock companies
2. Bond companies
3. Mutual companies
4. Fraternal benefit societies
5. Assessment companies
b. Which of these statements is not correct?
1. The balance sheet is a classified balance sheet.
2. The assets section starts with investments.
3. The majority of the investments are typically in bonds.
4. For life insurance companies, the investment in real estate may be much greater
than that for property-casualty companies.
5. Real estate investments are reported at cost less accumulated depreciation and an
allowance for impairment in value.
c. Generally, the largest liability is for loss reserves. The quantification process is subject to a number of estimates. Which of the following would not be one of the estimates?
1. Investment gains/losses
2. Inflation rate
3. Interest rates
4. Judicial interpretations
5. Mortality estimates
d. The manner of recognizing revenue on insurance contracts is unique for the insurance industry. Which of the following statements is not true?
1. In general, the duration of the contract governs the revenue recognition.
2. When the risk differs significantly from the contract period, revenue is recognized
over the period of risk in proportion to the amount of insurance protection.
3. For long-duration contracts, revenue is recognized when the premium is due from
policyholders.
4. Realized gains and losses from investments are reported in operations in the period
incurred.
5. For investment contracts, termination fees are booked as revenue over the period of
the contract.
e. Which of the following statements is not true?
1. Statutory accounting has emphasized the balance sheet in its concern for protecting
the policyholders by focusing on the financial solvency of the insurance corporation.
2. All 50 states have insurance departments that require annual statements of insurance companies. These annual reports are filed with the state insurance departments in accordance with SAP.
3. After the annual reports are filed with the individual state insurance departments, a
testing process is conducted by the NAIC. If a company’s ratio is outside the prescribed limit, the NAIC brings that to the attention of the company.
4. A.M. Best Company publishes Best’s Insurance Reports, which are published
separately for life-health companies and property-casualty companies. The financial
data, including the ratios, are based on the data submitted to the state insurance
departments and are thus based on SAP.
5. Many stock insurance companies must register with the Securities and Exchange
Commission and file the required forms, such as the annual Form 10-K. Reports
filed with the SEC must conform with GAAP.
f. 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 a likely reason for this
relatively low market value?
1. Insurance is a highly regulated industry.
2. The insurance industry has substantial competition.
3. The accounting environment likely contributes to the relatively low market price for insurance company stocks.
4. The nature of the industry leads to standards that provide for much judgment and
possible manipulation of reported profit.
5. All of the above.
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P 12-8: Required Answer the following multiple-choice questions related to bank financial reporting:
a. All but which of the following would be a representative asset of a bank?
1. Investment securities
2. Loans
3. Equipment
4. Cash on hand
5. Savings accounts
b. All but which of the following would be considered an earning asset of a bank for the earning assets to total assets ratio?
1. Loans
2. Leases
3. Cash
4. Investment securities
5. Money market assets
c. The ratio for a bank that provides an indication of management’s ability to control the spread between interest income and interest expense is the
1. Loan loss coverage ratio.
2. Earning assets to total assets.
3. Return on earning assets.
4. Interest margin to average total assets.
5. Equity capital to total assets.
d. All but which of the following would be a representative liability of a bank?
1. Savings
2. Demand deposits
3. Cash on hand
4. Long-term debt
5. Time deposits
e. Typically, the largest expense for a bank will be
1. Employer benefits.
2. Occupancy expense.
3. Salaries.
4. Provision for loan losses.
5. Interest expense.
f. The ratio that indicates the extent of equity ownership in a bank is the
1. Interest margin to average total assets.
2. Loss coverage ratio.
3. Loans to deposits.
4. Equity capital to total assets.
5. Deposits times capital.
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P 12-9: Required Answer the following multiple-choice questions:
a. A ratio that indicates how funds are supplied to a utility is:
1. Return on assets.
2. Percent earned on operating property.
3. Operating ratio.
4. Funded debt to operating property.
5. Operating revenue to operating property.
b. A ratio that relates net earnings to the assets primarily intended to generate earnings for a utility is:
1. Return on assets.
2. Percent earned on operating property.
3. Operating ratio.
4. Funded debt to operating property.
5. Operating revenue to operating property.
c. For a utility, the ratio that is basically an operating asset turnover ratio is:
1. Return on assets.
2. Percent earned on operating property.
3. Operating ratio.
4. Funded debt to operating property.
5. Operating revenue to operating property.
d. A ratio that indicates a measure of operating efficiency for a utility is
1. Operating revenue to operating property.
2. Funded debt to operating property.
3. Operating ratio.
4. Percent earned on operating property.
5. Long-term debt to operating property.
e. For a transportation firm, which ratio gives a measure of the source of funds with
which property is obtained?
1. Operating ratio
2. Operating revenue to operating property
3. Long-term debt to operating property
4. Per mile-per person-per ton
5. Return on equity
f. Which ratio is a measure of turnover of operating assets for a transportation firm?
1. Operating ratio
2. Long-term debt to operating property
3. Per mile-per person-per ton
4. Return on investment
5. Operating revenue to operating property
g. Which of these industries does not have a uniform system of accounts?
1. Banks
2. Utilities
3. Transportation
4. Oil and gas
5. 1, 2, and 3
h. Which of the following has a balance sheet similar in format to a manufacturing firm?
1. Banks
2. Insurance companies
3. Regulated utilities
4. 1 and 2
5. None of the above
For more MCQs Financial Statement Analysis by Gibson
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 1
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 2
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 3
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 4
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 5
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 6
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 7
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 8
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 9
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Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 11
Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 12
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Financial Statement Analysis by Charles H Gibson MCQs with Answers Chapter # 15