Final Practice Exam - CPCU 540
Sean owns a retail men's clothing store. After a recent fire, the insurance adjuster requested copies of
the store's most recent financial statements. The adjuster is more likely to use the statements to -
Answer-Estimate the inventory on hand at the dat of the loss
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
Which one of the following is an example of an efficiency ratio? - Answer-Accounts receivable turnover
ratio
In financial statement analysis, leverage ratios measure which one of the following? - Answer-The extent
to which a company has borrowed money
An underwriter is conducting ratio analysis and determines that a company has a current ratio of 1.2.
Which one of the following adjustments to the calculation should the underwriter make to ensure that
the company is able to meet its short-term obligations - Answer-Subtract the company's inventory from
the calculation
An underwriter is attempting to conduct ratio analysis on a company. The underwriter notices that the
company has $8 million in sales, $5 million in gross profit, and $2 million in net income. Which one of
the following conclusions can the underwriter reach by calculating the company's net profit margin? -
Answer-25% of the company's sales is left after all expenses are paid
The role of PHS is to - Answer-Provide a cushion to ensure the insurer has enough resources to meet
obligations to its policyholders
Which one of the following statements concerning insurer financial relationships is true? - Answer-
Immediately recognizing policy acquisition costs while deferring recognition of the associated revenue
causes surplus to decrease
The largest asset for many insurance companies is their investment in bonds. Under SAP, how is a bond
valued on an insurance company's balance sheet? - Answer-At the bond's amortized cost
Sean owns a retail men's clothing store. After a recent fire, the insurance adjuster requested copies of
the store's most recent financial statements. The adjuster is more likely to use the statements to -
Answer-Estimate the inventory on hand at the dat of the loss
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
Which one of the following is an example of an efficiency ratio? - Answer-Accounts receivable turnover
ratio
In financial statement analysis, leverage ratios measure which one of the following? - Answer-The extent
to which a company has borrowed money
An underwriter is conducting ratio analysis and determines that a company has a current ratio of 1.2.
Which one of the following adjustments to the calculation should the underwriter make to ensure that
the company is able to meet its short-term obligations - Answer-Subtract the company's inventory from
the calculation
An underwriter is attempting to conduct ratio analysis on a company. The underwriter notices that the
company has $8 million in sales, $5 million in gross profit, and $2 million in net income. Which one of
the following conclusions can the underwriter reach by calculating the company's net profit margin? -
Answer-25% of the company's sales is left after all expenses are paid
The role of PHS is to - Answer-Provide a cushion to ensure the insurer has enough resources to meet
obligations to its policyholders
Which one of the following statements concerning insurer financial relationships is true? - Answer-
Immediately recognizing policy acquisition costs while deferring recognition of the associated revenue
causes surplus to decrease
The largest asset for many insurance companies is their investment in bonds. Under SAP, how is a bond
valued on an insurance company's balance sheet? - Answer-At the bond's amortized cost
