CPCU 540 EXAM 4 2026 INSURANCE LAW
AND POLICY ANALYSIS ASSESSMENT STUDY
GUIDE COMPLETE QUESTIONS AND ANSWERS
◉ Why is it so important for a corporation to adopt a code of ethics.
Answer: A code of ethics provides a means of actively managing
ethics in the workplace
◉ Current Assets include. Answer: Inventory
◉ When accountants are able to ignore GAAP when recording some
insignificant items, they are following the. Answer: Materiality
principle
◉ Which one of the following best explains how unrealized capital
gains have a significant effect on a company's business operations?.
Answer: They are a part of the company's economic income and
affect the company's net worth
◉ The four primary types of financial statements include the
balance sheet, the statement of changes in shareholders' equity, the
statement of cash flows, and the. Answer: Income Statement
,◉ Home Housewares, Inc. is a retail store applying for commercial
coverage with ABC Insurance. The underwriter requested a copy of
Home Houseware's more recent financial statements. The
underwriter will use the balance sheet to determine. Answer: Home
Housewares financial position as of the balance sheet date
◉ The FASB requires organizations to report comprehensive income.
Comprehensive income includes an organization's net income and.
Answer: Unrealized gains on securities available for sale
◉ Which one of the following describes a section of the statement of
cash flows?. Answer: Cash flows from operating activities
◉ An insurer's balance sheet lists unearned premium as. Answer:
Liabilities
◉ On an insurer's balance sheet, incurred but not reported (IBNR)
losses are. Answer: A category of reserves
◉ 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. Answer: Notes to the financial statements
, ◉ Publicly traded companies must file a Form 10-K annually with
the SEC. Which one of the following best describes the information
contained in the 10-K. Answer: It is similar to the annual report but
contains more detailed information about the company
◉ 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?. Answer: The entity's reputation int he
marketplace
◉ Morgan Taylor is Vice President of Underwriting with Solid Rock
Insurance Company. The president of her company announced that
he wants to reduce expenses and will meet with the vice presidents
of each area. In preparation for her meeting with the president,
Morgan calculated two ratios for the last five years. First, she
calculated underwriting expenses as a percentage of direct
premiums written. Second, she divided direct premiums written by
the number of underwriters. Over the last five years, underwriting
expenses as a percentage of direct premiums written have declined,
while the direct premiums written per underwriter has increased.
The type of analysis Morgan performed is called. Answer: Trend
Analysis
◉ Which one of the following statements about vertical analysis
based on common-size statements is true?. Answer: Its focus is on
the relative size of each reported item to a common item for each
year considered
AND POLICY ANALYSIS ASSESSMENT STUDY
GUIDE COMPLETE QUESTIONS AND ANSWERS
◉ Why is it so important for a corporation to adopt a code of ethics.
Answer: A code of ethics provides a means of actively managing
ethics in the workplace
◉ Current Assets include. Answer: Inventory
◉ When accountants are able to ignore GAAP when recording some
insignificant items, they are following the. Answer: Materiality
principle
◉ Which one of the following best explains how unrealized capital
gains have a significant effect on a company's business operations?.
Answer: They are a part of the company's economic income and
affect the company's net worth
◉ The four primary types of financial statements include the
balance sheet, the statement of changes in shareholders' equity, the
statement of cash flows, and the. Answer: Income Statement
,◉ Home Housewares, Inc. is a retail store applying for commercial
coverage with ABC Insurance. The underwriter requested a copy of
Home Houseware's more recent financial statements. The
underwriter will use the balance sheet to determine. Answer: Home
Housewares financial position as of the balance sheet date
◉ The FASB requires organizations to report comprehensive income.
Comprehensive income includes an organization's net income and.
Answer: Unrealized gains on securities available for sale
◉ Which one of the following describes a section of the statement of
cash flows?. Answer: Cash flows from operating activities
◉ An insurer's balance sheet lists unearned premium as. Answer:
Liabilities
◉ On an insurer's balance sheet, incurred but not reported (IBNR)
losses are. Answer: A category of reserves
◉ 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. Answer: Notes to the financial statements
, ◉ Publicly traded companies must file a Form 10-K annually with
the SEC. Which one of the following best describes the information
contained in the 10-K. Answer: It is similar to the annual report but
contains more detailed information about the company
◉ 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?. Answer: The entity's reputation int he
marketplace
◉ Morgan Taylor is Vice President of Underwriting with Solid Rock
Insurance Company. The president of her company announced that
he wants to reduce expenses and will meet with the vice presidents
of each area. In preparation for her meeting with the president,
Morgan calculated two ratios for the last five years. First, she
calculated underwriting expenses as a percentage of direct
premiums written. Second, she divided direct premiums written by
the number of underwriters. Over the last five years, underwriting
expenses as a percentage of direct premiums written have declined,
while the direct premiums written per underwriter has increased.
The type of analysis Morgan performed is called. Answer: Trend
Analysis
◉ Which one of the following statements about vertical analysis
based on common-size statements is true?. Answer: Its focus is on
the relative size of each reported item to a common item for each
year considered
