Accounting For Financial Institutions - Fall 2020/2021

Section (2)
CH 5: The Financial Statements of Banks and Their Principal Competitors

Problems:

Answers:
 Gross Loans and leases =2,700+200=2,900
Net loans= gross loans – ALL
Net loans + All

 Bank Premises & fixed assets = 4,000 – (90+535+45+2,700+20+15+200+175) = 220

 Total Liab. & OE = 4,000

 Total liab. = 4,000 – (5+25+320+70) = 3,580

 Total deposits = 3,580-(80+10+50+480+40) = 2,920

 Total equity capital = 420
Accounting For Financial Institutions - Fall 2020/2021
 Accounting For Financial Institutions - Fall 2020/2021

Answers:
 Total assets = 30+375 = 405
 Net loans = 300-15=285
 Undivided profits =30- (5+15+3)=7
 Fed funds sold = 405-385=20
Net loans (gross loans – ALL)
Invst sec
Cash & due
Misc
Premises net
Trading sec
Other real estate
gw

 Depreciation=25-20=5
 Total deposits = 375-40=335
 Accounting For Financial Institutions - Fall 2020/2021

Fill in the Blank Questions:

1) Fed funds purchased is an example of _non-deposit borrowing__ along with Eurodollar borrowings. 
2) The short-term securities of the bank, including T-Bills and commercial paper, are often called Secondary reserves because
they are the second line of defense to meet demands for cash. 
3) A(n) Repurchase agreement is a short term collateralized loan. The collateral that is used generally consists of T-Bills. 
4) A financial institution often records the value of its assets and liabilities at Original cost/book value which is the historical
cost of the asset.
5) The Report of income (IS) shows the amount of revenues received and expenses incurred over a specific time period. 
6) The Report of condition (BS) lists the assets, liabilities and equity capital held by the bank on a given date. 

State whether the following statements are true or false and correct the false statements:

1) Loans and leases are financial outputs on a financial institution's balance sheet or Report of Condition. TRUE
2) Securities income is a financial output listed on a financial institution's Report of Condition. False (Report of income)
3) Net loans on a bank's balance sheet are derived by deducting the allowance for loan losses and unearned discounts from gross
loans. True
4) Recoveries on loans previously charged off are added to the Provision for Loan Losses (PLL) account (adjusted allowance
for loan loss) on a bank's income statement (balance sheet/Report of condition). False
 Accounting For Financial Institutions - Fall 2020/2021
Multiple Choice Questions:
1) 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.
2) 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.
3) 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.
4) The account that is built up by annual noncash expense deductions and is subtracted from Gross Loans on the Report of Condition
is: 
A.  unearned income.
B.  nonperforming loans.
C.  allocated loan risk deductions.
D.  allowance for possible loan losses.
E.  None of the options are correct.

5) 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? 
A.  PLL, gross loans
B.  ALL, net loans
C.  ALL, gross loans
D.  PLL, net loans
E.  None of the options are correct.
6) 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.
7) A bank which starts with ALL of $1.48 million at the beginning of the year, charges off worthless loans of $0.94 million during the
year, recovers $0.12 million on loans previously charged off and charges current income for a $1.02 million provision for loan losses,
will have an ALL at the end of the year of: 
A.  $0.66 million.
B.  $3.32 million.
C.  $1.68 million.
D.  $1.28 million.
E.  The same amount as at the beginning of the year.

Beg ALL 1.48

+ provisions 1.02
 Accounting For Financial Institutions - Fall 2020/2021
= adj ALL 2.5

- write off 0.94

+ recoveries 0.12

= end ALL 1.68

 Accounting For Financial Institutions - Fall 2020/2021

8) You know the following information about the Miller State Bank:

   

Given this information, what is the value of this firm's total liabilities plus equity? 
A.  $250
B.  $450
C.  $150
D.  $50
E.  $500