Question 1

Points: 1

Insurer, Inc., issued 10,000 shares of stock with a par value of $0.10 a share at $15 a share. What
is represented by the following calculation?

(10,000 x $15) minus (10,000 x $0.10) equals $149,000

Choose one answer.
A. Additional paid-
in capital Correct. Additional paid-in capital is the amount in excess of the par
value of issued stocks invested in an organization by its owners.

B. Retained
earnings

C. Par value

D. Dividends

ID: 5844856
Correct
Points for this submission: 1/1.
Question 2
Points: 1

Which one of the following expenses incurred by insurers is matched to earned premiums?

Choose one answer.

A. Administrative expenses

B. Interest expense on outstanding

debt.

C. Unrealized loss on investments Incorrect. Policy acquisition costs are matched to earned
premiums.
D. Policy acquisition costs

ID: 5860418
Incorrect
Points for this submission: 0/1.
Question 3
Points: 1

The role of the policyholders surplus is to

Choose one answer.

A. Provide an estimate of the total losses
that will be paid for the insurance
coverage sold.

B. Provide a meaningful valuation of the

assets the insurance company owns.

C. Provide a cushion to ensure the insurer Correct. The role of the policyholders surplus is
has enough resources to meet obligations to provide a cushion to ensure the insurer has
to the policyholders. enough resources to meet obligations to the
policyholders.
D. Provide a place on the balance sheet
where the insurers income and expenses
can be matched, and net income recorded.

ID: 5860474
Correct
Points for this submission: 1/1.
Question 4
Points: 1

An insurer's income statement can be described as a financial statement that shows the

Choose one answer.

A. Relationship between revenues
and liabilities.

B. Relationship between assets and

income.

C. Relationship between revenues, Correct. An insurer's income statement shows the

expenses, and net income. relationship between revenues, expenses, and net
income.
 D. Relationship between revenues
and incurred losses.

ID: 5844807
Correct
Points for this submission: 1/1.
Question 5
Points: 1

Which one of the following would be the best reason for maximization of shareholder wealth as
a goal of corporate finance?

Choose one answer.

A. To assist in meeting regulatory
requirements.

B. To maintain a market to raise

additional capital. Correct. It would be to maintain a market to raise
additional capital.

C. To maintain the integrity of the

corporate identity.

D. To retain customers in a competitive

marketplace.

ID: 5843900
Correct

Question 6

Points: 1

The market value of an organizations stockholder shares is likely to be substantially different

from the organizations book value. The organizations market value to shareholders is based on

Choose one answer.

A. Accounting income.
 B. GAAP accounting rules.
Incorrect. It is based on economic income.

C. Economic income.

D. SAP accounting rules.

ID: 5844558

Incorrect

Points for this submission: 0/1.

Question 7

Points: 1

Home Housewares Inc. is a retail store applying for commercial coverage with ABC Insurance.
The underwriter requested a copy of Home Housewares most recent financial statements. The
underwriter will use the balance sheet to determine

Choose one answer.

A. Home Housewares sources of

cash as of the balance sheet date.

B. Home Housewares gross profit

margin as of the balance sheet
date.

C. Dividend payments to
shareholders as of the balance
sheet date.

D. Home Housewares financial

position as of the balance sheet Correct. The underwriter will use the balance sheet to
date. determine Home Housewares financial position as of the
balance sheet date.
ID: 5860404

Correct

Points for this submission: 1/1.

Question 8

Points: 1

Theres an accounting rule that requires revenues to be offset by the expenses incurred to
generate the revenues. This accounting rule is called the

Choose one answer.

A. Accounting equation.

B. Risk-based capital standard.

C. Market value rule.

D. Matching principle.
Correct. This accounting rule is called the matching principle.

ID: 5860472

Correct

Points for this submission: 1/1.

Question 9

Points: 1

Asset classes are organized into two broad categories on the balance sheet of the NAIC Annual
Statement. These are

Choose one answer.

A. Securities and
nonadmitted assets.
 B. Cash and noncash
assets.

C. Admitted assets and other

assets.

D. Invested assets and

noninvested assets. The two broad categories of assets on the NAIC Annual
Statement are invested assets and noninvested assets.

ID: 5860995

Correct

Points for this submission: 1/1.

Question 10

Points: 1

Ace Woodworking Company makes household furniture. Which one of the following best
describes an expense that should be classified as an operating expense on Aces income
statement?

Choose one answer.

A. Wages paid to
furniture assemblers

B. Payments to lumber
suppliers Incorrect. Utility charges for the manufacturing plant best describes
an expense that should be classified as an operating expense on
Aces income statement.

C. Utility charges for the

manufacturing plant

D. Costs for new factory

equipment
ID: 5860408

Incorrect

Question 11

Points: 1

When accountants are able to ignore generally accepted accounting practices when recording
some insignificant items, they are following

Choose one answer.

A. The matching principle.

B. The materiality principle.

Correct. It is the materiality principle.

C. The cost principle.

D. The conservatism principle.

ID: 5858795

Correct

Points for this submission: 1/1.

Question 12

Points: 1

Sarbanes-Oxley requires the principal executive officer and the principal financial officer to
certify the accuracy of which financial reports?

Choose one answer.

A. Monthly and quarterly

 B. Semi-quarterly and annual

C. Bi-monthly and annual

D. Quarterly and annual

Correct. Quarterly and annual

ID: 5861149

Correct

Points for this submission: 1/1.

Question 13

Points: 1

The purchase of a building is a capital expenditure. How is the purchase recorded on the income
statement?

Choose one answer.

A. The purchase price is an expense on the closing

date of the sale.

B. The purchase is expensed over the number of

years of the related financing agreement.

C. The purchase price is expensed over the

buildings life expectancy. Correct. The purchase price is expensed
over the buildings life expectancy.

D. Capital expenditures are reported on the cash

flow statement as an operating activity.

ID: 5860411

Correct

Points for this submission: 1/1.

Question 14

Points: 1

All underwriters at Wheaton Insurance are required to evaluate the clients' assets and liabilities
before renewing a policy for a retail sales company. The underwriters use this evaluation to

Choose one answer.

A. Screen for an acceptable level

of financial stability. Correct. The underwriters use this evaluation to screen for
an acceptable level of financial stability.

B. Forecast the value of insurable

inventory.

C. Evaluate the adequacy of the

gross profit margin.

D. Estimate the value of non-

reported inventory.

ID: 5845987

Correct

Points for this submission: 1/1.

Question 15

Points: 1

Which one of the following is a major purpose of the statement of cash flows?

Choose one answer.

A. It is used by
insurance agents to
balance daily bank
deposits.
 B. It is used in the cash
allocation process by
line managers.

C. It is used by middle
management to assess
future resource needs.

D. It is used to assess
the ability to generate Correct. It is used to determine an organization's ability to generate
positive future cash positive cash flows, its ability to meet financial obligations, and its
flows. need for additional financing. It is also used to determine the reasons
for any differences between net income and associated cash receipts
and disbursements.
ID: 5844864

Correct

Question 16
Points: 1

Under the cost principal of GAAP,

Choose one answer.

A. Transactions must be recorded at their
acquisition cost.
B. Transactions must be recorded at their fair
market value.
Correct. The cost principle of GAAP requires
that transactions be recorded at acquisition
cost.

C. Transaction records must reflect any

premium or discount.

D. Transactions must be recorded

consistently, either at acquisition cost or fair
market value.

ID: 5844882
Correct
Points for this submission: 1/1.
Question 17
Points: 1

Reporting comprehensive income is especially important for insurance companies because

Choose one answer.

A. Insurers may have large
realized investment losses.

B. Insurers may have large

recoverable due from
reinsurers.

C. Insurers may have large Correct. Reporting comprehensive income is especially

unrealized investment gains. important for insurance companies because insurers may have
large unrealized investment gains.
D. Insurers may have large
deferred policy acquisition
costs.

ID: 5860419
Correct
Points for this submission: 1/1.
Question 18
Points: 1

What prevents an insurer's financial statements from reflecting the insurer's fair market value?

Choose one answer.

A. Reserves reduce
policyholder surplus.

B. The NAIC sets the

value of insurer liabilities.

C. Assets do not include

capital gains.

D. The cost principle of Incorrect. An insurer's balance sheet does not reflect an insurer's
accounting overstates loss fair market value because NAIC rules and the cost principle of
reserve liabilities. accounting require securities to be valued at cost rather than
recognize capital gains appreciation.
ID: 5844849
Incorrect
Points for this submission: 0/1.
Question 19
Points: 1

ABC Company purchased a building in Manhattan in 1935. There is no mortgage on the

property. Which one of the following statements best describes a limitation of the financial
statements when evaluating ABCs financial position?

Choose one answer.

A. The financial statements report the building
as fully depreciated.

B. The location of the building may not be

disclosed.

C. The fair value of the building may be much

Correct. The fair value of the building may
higher than cost.
be much higher than cost.
D. The original mortgage may be reported on
the financial statements.

ID: 5860420
Correct
Points for this submission: 1/1.
Question 20
Points: 1

When evaluating the price of equities, the stock market relies on which one of the following that
is not assigned a value on the financial statements?

Choose one answer.

A. The tax reporting status of
the entity

B. The entitys outstanding

pension liability

C. The entitys reputation in

Correct. When evaluating the price of equities, the stock
the marketplace
market relies on the entitys reputation in the marketplace.
D. The entitys debt
assumption during the year

ID: 5860421
Correct
Points: 1

An insurance claim representative might likely use information contained in the insureds
financial statements to

Choose one answer.

A. Determine fault after the injury to

a customer.

B. Determine the cost to repair a

building after a fire.

C. Determine if a moral hazard

exists after a fire loss.

D. Determine if coverage exists for

a damaged auto. Incorrect. A moral hazard might exist due to financial
losses, and arson may be suspected.

ID: 5843948

Incorrect

Points for this submission: 0/1.

Question 22

Points: 1

The Financial Accounting Standards Board (FASB) requires organizations to report

comprehensive income. Comprehensive income includes an organizations net income and

Choose one answer.

A. Change in market value of

stock issued by the organization.

B. Additional capital contributions

 made by shareholders.

C. Unrealized gains on securities

available for sale. Correct. Comprehensive income includes an organizations
net income and unrealized gains on securities available for
sale.

D. Write-down of goodwill due to

impairment.

ID: 5860413

Correct

Points for this submission: 1/1.

Question 23

Points: 1

Which one of the following statements concerning insurer financial relationships is true?

Choose one answer.

A. A high capacity ratio indicates strong financial

health. Incorrect. As new business is written,
surplus goes down as it is used to pay
acquisition costs.

B. The capacity ratio measures the ability of the

insurer to use its existing assets to meet its
financial obligations.

C. As new business is written, surplus goes down

as it is used to pay acquisition costs.

D. The excess of written premium over expenses

and losses is added to surplus.

ID: 5844746
Incorrect

Points for this submission: 0/1.

Question 24

Points: 1

Which of the following statements concerning the uses and differences between Generally
Accepted Accounting Principles (GAAP) and Statutory Accounting Principles (SAP) is true?

Choose one answer.

A. GAAP treats a business as a going concern and

focuses on measuring income, while SAP focuses Correct. GAAP treats a business as a going
on solvency and meeting policyholder obligations. concern and focuses on measuring income,
while SAP focuses on solvency and
meeting policyholder obligations.

B. GAAP is far more conservative than SAP with

regard to income and expense recognition.

C. An insurer is required to use SAP whenever it

communicates with policyholders and stockholders,
and GAAP when communicating with regulators.

D. An insurer can choose whether to use GAAP or

SAP, but once the decision is made, it must use the
selected accounting framework for all financial
reporting, regardless of the audience.

ID: 5860481

Correct

Points for this submission: 1/1.

Question 25

Points: 1

Which one of the following best explains how unrealized capital gains have a significant effect
on a companys business operations?

Choose one answer.

 A. Unrealized capital gains are offset by
increases in interest rates on debt
obligations.

B. All debt obligations have a significant

effect on the companys operating cash
flows.

C. It is assumed that the gains will

eventually be realized and are included in
income.

D. They are part of the companys

economic income and affect the Correct. Unrealized capital gains are part of the
companys net worth. company's economic income and affect the
company's net worth.

ID: 5844573

Correct

Question 26

Points: 1

One of the generally accepted accounting principles (GAAP) is the conservatism principle,
which requires

Choose one answer.

A. An organizations assets to be recorded at

their purchase price or production price.

B. Transactions to be recorded in a manner such

that that assets and earnings are not overstated. Correct. Transactions to be recorded in a
manner such that that assets and earnings are
not overstated.

C. An organization to use the same accounting

principles and reporting practices in every
 accounting period.

D. Expenses incurred in generating revenues to

be matched against those revenues.

ID: 5861151

Correct

Points for this submission: 1/1.

Question 27

Points: 1

Sean owns a retail mens clothing store. After a recent fire, the insurance adjuster requested
copies of the stores most recent financial statements. The adjuster is most likely to use the
statements to

Choose one answer.

A. Classify the inventory loss as

covered or denied.

B. Evaluate the marketability of

the inventory.

C. Estimate the inventory on

hand at the date of loss. Correct. The adjuster is most likely to use the statements to
estimate the inventory on hand at the date of loss.

D. Forecast the stores

immediate cash needs.

ID: 5845985

Correct

Points for this submission: 1/1.

Question 28
Points: 1

The four primary types of financial statements include the balance sheet, the income statement,
the statement of cash flows, and the

Choose one answer.

A. Statement of
retained earnings.

B. Summary of
accounting policies.

C. Statement of
changes in owners' Correct. The four primary types of financial statements include the
equity. balance sheet, the income statement, the statement of changes in
owners' equity, and the statement of cash flows.

D. Schedule of
contingencies.

ID: 5858850

Correct

Points for this submission: 1/1.

Question 29

Points: 1

Capital budgeting manages a corporation's

Choose one answer.

A. Insurance purchases.

B. Cash inflows.
 C. Long-term
investments. Correct. Capital budgeting manages a corporation's long-term
investments.

D. Accounts receivable.

ID: 5854807

Correct

Points for this submission: 1/1.

Question 30

Points: 1

The four primary types of financial statements include the income statement, the statement of
changes in owners' equity, the statement of cash flows, and the

Choose one answer.

A. Statement of
revenues and
expenses.

B. Statement of
activities.

C. Balance sheet. Correct. The four primary types of financial statements include the
balance sheet, the income statement, the statement of changes in
owners' equity, and the statement of cash flows.
D. Statement of
shares and other
equity.

ID: 5844743

Correct

Question 31

Points: 1
An insurer's comprehensive income includes

Choose one answer.

A. The insurer's completed

balance sheet.

B. Any dividends paid to

stockholders.

C. Listings of salaries of key

employees.

D. Unrealized gains and losses

on securities. Correct. An insurer's comprehensive income includes
unrealized gains and losses on securities.

ID: 5859812

Correct

Points for this submission: 1/1.

Question 32

Points: 1

Which of the following best describes the purpose of financial statements?

Choose one answer.

A. To communicate information about an

organizations financial status. Correct. It is to communicate information about
an organizations financial status.

B. To present financial information to the

accounting department for bookkeeping.

C. The classification, analysis, and

determination of appropriate reporting.
 D. To interrelate the balance sheet, income
statements, and owners equity.

ID: 5843919

Correct

Points for this submission: 1/1.

Question 33

Points: 1

NOP Corporation, a publicly traded company, has a $72 million public float. The company's
fiscal year ends on December 31 of each calendar year. On April 30 of the current year, NOP
Corporation agreed with certain counterparties to amend the terms of two different derivative
contracts. NOP Corporation first reported these transactions on

Choose one answer.

A. Form 10-K to their state of

domicile's insurance
department.

B. Form 8-K to the Securities

and Exchange Commission. Incorrect. NOP Corporation would report the creation of a
new contract on a Form 8-K, but would report amendments on
its 10-Q for this quarter.

C. Form 10-Q to the Securities

and Exchange Commission.

D. Form 8-Q to their state of

domicile's insurance
department.

ID: 5859625

Incorrect

Points for this submission: 0/1.

Question 34

Points: 1

The portion of net income that is held onto by a company and not distributed to stockholders is
called

Choose one answer.

A.
Dividends.

B. Retained Correct. Retained earnings. One of the purposes of the retained earnings section
earnings. of the statement of changes in owners' equity is to connect the income
statement to the balance sheet by indicating how much of the net income of the
company is being reinvested for ongoing and future business needs rather than
distributed to the owners in the form of dividends.
C. Par value
share.

D. Paid-in
capital.

ID: 5844853

Correct

Points for this submission: 1/1.

Question 35

Points: 1

How would an underwriter best use a potential insureds financial statements when underwriting
the risk?

Choose one answer.

A. To determine how much actual premium

the risk can pay.
 B. To determine if there is any potential
growth for this risk.

C. To determine if the risk is committing any

fraud in their operations.

D. To assess the ability of the risk to make

timely premium payments. Correct. To assess the ability of the risk to make
timely premium payments.

ID: 5843949

Correct

Question 36

Points: 1

The treasurer of a corporation has decided to implement changes to the corporation's capital
structure for the coming fiscal year. She plans to raise more capital through long-term debt,
rather than alternate sources. With the implementation of these changes, she expects the total
value of the corporation to

Choose one answer.

A. Be less
predictable.

B. Decrease.

C. Increase.

D. Remain the
same. Correct. With the implementation of these changes, she expects the total
value to remain the same.

ID: 5848194
Correct

Points for this submission: 1/1.

Question 37

Points: 1

As a component of insurer income, other income consists of revenues and expenses that are not
related to income from either

Choose one answer.

A. Assets or liabilities amounts.

B. Underwriting or investment
activities.

C. Cash flow or cash losses.

D. Balance sheet or income

statements. Incorrect. It is income that is not related to underwriting or
investment activities.

ID: 5844566

Incorrect

Points for this submission: 0/1.

Question 38

Points: 1

The GAAP matching principle

Choose one answer.

A. Requires businesses to
match accounts due with Incorrect. By requiring businesses to match expenses to
accounts receivable. revenues, the matching principle helps businesses to
accurately measure the profitability of their activities.
 B. Helps businesses to
accurately measure the
profitability of their activities.

C. Allows businesses to
compare the income statement
and balance sheet.

D. Helps businesses compare

profitability of non-identical
enterprises.

ID: 5858794

Incorrect

Points for this submission: 0/1.

Question 39

Points: 1

The largest asset for many insurance companies is their investment in bonds. Under statutory
accounting principles (SAP), how is a bond valued on an insurance companys balance sheet?

Choose one answer.

A. At the bonds maturity value

B. At the bonds maturity value less the

sum of any interest payable from the
bond

C. At the bonds amortized cost Correct. Under SAP, a bond is valued on an

insurance companys balance sheet at the bonds
amortized cost.
D. At the bonds original purchase price
ID: 5860476

Correct

Points for this submission: 1/1.

Question 40

Points: 1

Current assets include

Choose one answer.

A. Inventory. Correct. Current assets include inventory, accounts receivable, and marketable
securities. Noncurrent assets include land, buildings, equipment, leaseholds,
patents, copyrights, and trademarks.
B.
Equipment.

C.
Leaseholds.

D. Patents.

ID: 5844782

Correct

Question 41

Points: 1

The Sarbanes-Oxley Act of 2002

Choose one answer.

A. Requires principal officers to

guarantee completeness and accuracy Incorrect. The Sarbanes-Oxley Act of 2002 created a
of financial reports. board to regulate public accounting firms that audit
publicly traded corporation.
 B. Enhanced financial disclosure
requirements for all corporations issuing
stocks.

C. Subjects officers to civil penalties for

failing to fulfill requirements.

D. Created a board to regulate public

accounting firms that audit publicly
traded corporation.

ID: 5854796

Incorrect

Points for this submission: 0/1.

Question 42

Points: 1

Which one of the following describes a section of the statement of cash flows?

Choose one answer.

A. Cash flows
from sales
activities

B. Cash flows
from net premium
activities

C. Cash flows
from financing Correct. The statement of cash flows summarizes how cash flows into and
activities out of an organization's accounts. This statement is divided into three
areas: cash from operations, cash from investments, and cash from
financing.
 D. Cash flows
from equity
activities

ID: 5858859

Correct

Points for this submission: 1/1.

Question 43

Points: 1

Ready Insurance Company, listed on the NASDAQ stock exchange as RINS, writes insurance in
the states of Florida, Louisiana, Alabama, Texas, Nevada, and California. Because Ready
Insurance Company writes insurance in areas prone to catastrophes such as earthquakes and
hurricanes, the company segments its business between earthquake-prone states and hurricane-
prone states. Ready Insurance Company

Choose one answer.

A. Chooses to disclose the business

segment information through its financial
notes as it is a publicly traded company.

B. Is required to disclose the business

segment information through its financial
notes as it is a publicly traded company.

C. Is required to disclose the business

segment information through its 10-K Incorrect. Ready Insurance Company is required to
report as it is a publicly traded company. disclose the business segment information through
its financial notes as it is a publicly traded company.

D. Chooses to disclose the business

segment information through its 10-K
report as it is a publicly traded company.

ID: 5848231

Incorrect
Points for this submission: 0/1.

Question 44

Points: 1

International Financial Reporting Standards (IFRS) report the value of property, plant, and
equipment assets at

Choose one answer.

A. Fair value.

B. Historical
cost. Incorrect. International Financial Reporting Standards (IFRS) report the value
of property, plant, and equipment assets at fair value.

C. Book value.

D. Amortized
cost.

ID: 5859963

Incorrect

Points for this submission: 0/1.

Question 45

Points: 1

Accounting income is determined by the application of particular accounting rules to an

organizations financial activity. Which one of the following is a difference between the
application of GAAP accounting principles and SAP accounting principles?

Choose one answer.

A. The way revenue and expenses are

recognized Correct. A difference is in the way revenue and
expenses are recognized.
 B. The way that incoming premium is
allocated

C. The use of historical costs verses

current costs

D. The effect that income has on

company net worth

ID: 5859809

Correct

76795 Finish review

Started on Thursday, 9 May 2013, 05:43 AM

Completed on Thursday, 9 May 2013, 07:07 AM

Time taken 1 hour 23 mins

Grade 44 out of a maximum of 60 (73%)

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Question 46

Points: 1

CES Brokers is considering purchasing several shares of Tylo Industries to diversify their
investment portfolio. Prior to the purchase, CES would like detailed information on long-term
debt issued by Tylo that is nearing maturity. CES should look for this information in the

Choose one answer.

A. Notes to the financial

statements.
 B. Audit report.

C. Statement of cash flows.

D. Statement of changes in
owner's equity. Incorrect. CES should look for this information in the notes
to the financial statements.

ID: 5848229

Incorrect

Points for this submission: 0/1.

Question 47

Points: 1

Publicly traded companies must file a Form 10-K annually with the Securities and Exchange
Commission (SEC). Which one of the following best describes the information contained in
Form 10-K?

Choose one answer.

A. It is a form filed with the SEC to announce

major events that shareholders should know
about.

B. It is similar to the annual report but contains

more detailed information about the company. Correct. It is similar to the annual report but
contains more detailed information about the
company.

C. It is a report containing unaudited financial

statements and a MD&A report.

D. It highlights certain company data that has

resulted in a positive or negative trend.

ID: 5843974
Correct

Points for this submission: 1/1.

Question 48

Points: 1

Liabilities are claims against the organizations assets. Which one of the following best describes
a current liability?

Choose one answer.

A. Unpaid invoices from vendors

Correct. Unpaid invoices from vendors describes a
current liability.

B. Unamortized portion of goodwill

C. Treasury stock to be retired in six

months

D. Deferred acquisition costs

ID: 5860406

Correct

Points for this submission: 1/1.

Question 49

Points: 1

In addition to complying with laws and regulations, a corporate code of ethics provides

Choose one answer.

A. Financial transparency to
management.

B. Maximization of shareholder wealth.

 C. The establishment of corporate goals.

D. A means of managing ethics in the

workplace. Correct. It provides a means of managing ethics in
the workplace.

ID: 5843902

Correct

Points for this submission: 1/1.

Question 50

Points: 1

Which one of the following stements about various schedules to the NAIC Annual Statement is
true?

Choose one answer.

A. Schedule D is limited to summary data about

an insurer's investments.

B. Schedule F provides information the insurer's

reinsurance arrangements, including Schedule F provides information the insurer's
reinsurance assumed and reinsurance ceded. reinsurance arrangements, including
reinsurance assumed and reinsurance ceded.

C. Schedule P aggregates information into two

lines of insuranceproperty and liability.

D. Schedule P reports up to five years of loss

data on a calendar-year basis.

ID: 5861004

Correct
Question 51

Points: 1

Working capital is

Choose one answer.

A. Current assets times current

liabilities.

B. Current assets minus current

liabilities. Correct. Working capital is current assets minus current
liabilities.

C. Current liabilities minus current

assets.

D. Current liabilities divided by current

assets.

ID: 5854805

Correct

Points for this submission: 1/1.

Question 52

Points: 1

In the third quarter of 2008, an influenza epidemic increased demand for the flu vaccine. Mark
Pharmaceuticals, a company that stocks the vaccine, saw the value of its vaccine supply increase
from $36 million to $50 million. This increase of $14 million represents an increase in

Choose one answer.

A. Accounting
income. Incorrect. This increase of $14 million represents an increase in
economic income.
 B. GAAP income.

C. Statutory income.

D. Economic
income.

ID: 5848362

Incorrect

Points for this submission: 0/1.

Question 53

Points: 1

Which one of the following statements best describes the shareholders equity section of the
balance sheet?

Choose one answer.

A. Shareholders equity is an asset of the business

entity.

B. Shareholders equity is negative when the entity

reports a net loss for the year.

C. Shareholders equity decreases by the amount

of debt satisfied during the year.

D. Shareholders equity is negative when liabilities

exceed assets. Correct. Shareholders equity is negative
when liabilities exceed assets.

ID: 5860403

Correct
Points for this submission: 1/1.

Question 54

Points: 1

On an insurer's balance sheet, incurred but not reported (IBNR) losses are

Choose one answer.

A. A past current
asset.

B. A category of
reserves.

C. A long term
term liability. Incorrect. Incurred but not reported (IBNR) losses must be estimated and a
reserve entered on an insurer's balance sheet as a current liability.

D. Not reported.

ID: 5859828

Incorrect

Points for this submission: 0/1.

Question 55

Points: 1

Policyholders surplus on the SAP balance sheet is best represented as

Choose one answer.

A. Assets +
Liabilities.

B. Assets
Correct. Policyholders surplus on the SAP balance sheet is best
Liabilities.
represented as Assets Liabilities.
 C. Assets.

D. Liabilities.

ID: 5859938

Correct

Question 56

Points: 1

Which one of the following accounting principles may cause a limitation in the use of financial
statements to evaluate an organization?

Choose one answer.

A. The cost principle

Correct. The cost principle may cause a limitation in the use of
financial statements to evaluate an organization.

B. The matching
principle

C. The consistency
principle

D. The tax basis

principle

ID: 5860423

Correct

Points for this submission: 1/1.

Question 57
Points: 1

When premiums earned during any specific accounting period are less than incurred losses plus
underwriting expenses there will be an

Choose one answer.

A. Increase in surplus.

B. Underwriting loss.

C. Investment loss.
Incorrect. There is an underwriting loss.

D. Underwriting gain.

ID: 5844561

Incorrect

Points for this submission: 0/1.

Question 58

Points: 1

The primary purpose of financial statements is

Choose one answer.

A. To communicate information
about an organization's financial
activities to decision makers.
Correct. Financial statements communicate information
about an organization's financial activities, and the results of
those activities, to individuals who need to make informed
decisions about the organization.

B. To enable customers to make

informed decisions concerning a
company's products.
 C. To ensure that a company's
cash flow balances at the end of
a business day.

D. To enable a sales department

to make convincing
presentations to potential
buyers.

ID: 5844734

Correct

Points for this submission: 1/1.

Question 59

Points: 1

A key accounting concept is that an organization should be valued as if it will continue to

operate indefinitely. This view is known as the

Choose one answer.

A. Matching principle.

B. Going concern concept.

Correct. This view is known as the going concern concept.

C. Market value principle.

D. Liquidation perspective.

ID: 5860470

Correct

Points for this submission: 1/1.

Question 60
Points: 1

Which one of the following statements about the balance sheet is correct?

Choose one answer.

A. The balance sheet contains

important financial information about
net worth and assets, both which
indicate the source of an
organization's funding.

B. Change in asset and liability

valuation from historical cost to fair
value has no effect on the value of
shareholders' equity.

C. The balance sheet must always

balance, but an exception is that the
balance sheet will not balance if net
worth is a negative number.

D. Net worth is positive whenever the

value of assets exceeds the value of
liabilities and negative if the value of
liabilities exceeds the value of
assets.
ID: 5858853
Correct. Net worth is positive whenever the value of
assets exceeds the value of liabilities and negative if the
value of liabilities exceeds the value of assets. The
balance sheet will always balance, even when net worth
is negative. Liabilities and net worth indicate the source
of funding.

Correct