Professional Documents
Culture Documents
1)Which accounts are most important and which are least important on the asset side of a bank's
balance sheet?
Bank Premises and Fixed Assets
Investment Securities: The Liquid Portion
Federal Funds Sold
Cash and Due from Depository Institutions
Trading Account Assets
Unearned Income
Investment Securities :The Income-Generating Portion
Other Real Estate Owned (OREO)
The most important accounts on the asset side balance sheet are cash assets and security. For
example, investment securities, and Cash and Due from Depository Institutions (Cash assets).
The least important accounts on the asset balance sheet are miscellaneous assets. For example,
Other Real Estate Owned (OREO) (Miscellaneous assets), and Bank Premises and Fixed Assets
(Miscellaneous assets).
2. Suppose a bank has an allowance for loan losses of $1.25 million at the beginning of the
year, charges current income for a $250,000 provision for loan losses, charges off worthless
loans of $150,000, and recovers $50,000 on loans previously charged off. What will be the
balance in the allowance for loan losses at year-end?
1,250,000 + 250,000 + 50,000 – 150,000 = 1,400,000
4. For each of the following transactions, which items on a bank’s statement of income and
expenses (Report of Income) would be affected?
a. Office supplies are purchased so the bank will have enough deposit slips and other
necessary forms for customer and employee use next week.
Non-interest expenses will be affected which might be related to premises&equipment expenses.
b. The bank sets aside funds to be contributed through its monthly payroll to the employee
pension plan in the name of all its eligible employees.
Non-interest expenses will be affected which might be related to wages and salaries expenses.
c. The bank posts the amount of interest earned on the savings account of one of its
customers.
Total Interest Expenses would be influenced.
d. Management expects that among a series of real estate loans recently granted the default
rate will probably be close to 3 percent.
This would affect the interest expense which is provision for loans and losses which refers to
funds set aside by a bank to cover bad loans.