CPCU 540 ACTUAL TEST QUESTIONS WITH
COMPLETE ANSWER KEY
●● Capital structure
Answer: A corporation's mix of long-term debt and equity
●● Fair value
Answer: The market value, either actual or estimated, of an asset or a
liability
●● Sarbanes-Oxley Act of 2002
Answer: A federal statutory law governing corporate directors in the
areas of investor protection, internal controls, and penalties, both civil
and criminal.
●● Stakeholder
Answer: Anyone with a financial interest in the corporation
●● Statutory accounting principles (SAP)
Answer: The accounting principles and practices that are prescribed or
permitted by an insurer's domiciliary state and that insurers must follow
●● Working capital
,Answer: A liquidity measure that is calculated by subtracting current
liabilities from current assets. It is used to determine a company's ability
to finance immediate operations (to buy inventory, finance growth, and
obtain credit)
●● Accounting
Answer: The classification, analysis, and determination of the
appropriate method of reporting the effects of the bookkeeping records
in an organization's financial statements
●● Additional Paid-In-Capital (equation)
Answer: (#shares x price per share) - (#shares x par value)
●● Assets Unique to Insurers
Answer: Premium Receivables
Reinsurance recoverables
Deferred policy acquisition costs
●● Balance sheet
Answer: The financial statement that reports the assets, liabilities, and
owners' equity of an organization as of a specific date
●● Balance Sheet Equation
Answer: Assets - liabilities = shareholder's equity (net worth)
,●● Comprehensive income
Answer: A measure of income that goes beyond that reported on the
income statement by including items such as unrealized gains and losses
●● Cost of Goods Sold
Answer: Beginning inventory + additions to inventory - ending
inventory
●● Current assets
Answer: A balance sheet asset classification that includes case and other
assets that are expected to be converted into cash, sold, or exchanged
within the buisness's normal operating cycle, usually one year
●● Current liabilities
Answer: A balance sheet liability classification that includes obligations
whose payments are reasonably expected to require the use of cash or
the creation of other current liabilities within one year
●● Depreciation expense
Answer: An accounting method that spreads out the expense of a
purchase over the life expectancy of the item
●● Financial statement
, Answer: A document that quantitatively presents an organization's
financial activities or status
●● Form 8-K Required When...
Answer: - Material definitive agreements entered
- Release of non-public information
- Creation of a direct financial obligation
- Change of independent auditor
- Departure or election of directors/principal officers
●● Generally accepted accounting principles (GAAP)
Answer: The rules and procedures to be used in the preparation of an
organization's financial statements
●● Gross Margin (equation)
Answer: Gross profit / sales
●● Gross margin (gross profit margin)
Answer: The percentage of sales remaining after deducting the cost of
goods sold from sales, calculated by dividing gross profit by sales
●● Gross profit
COMPLETE ANSWER KEY
●● Capital structure
Answer: A corporation's mix of long-term debt and equity
●● Fair value
Answer: The market value, either actual or estimated, of an asset or a
liability
●● Sarbanes-Oxley Act of 2002
Answer: A federal statutory law governing corporate directors in the
areas of investor protection, internal controls, and penalties, both civil
and criminal.
●● Stakeholder
Answer: Anyone with a financial interest in the corporation
●● Statutory accounting principles (SAP)
Answer: The accounting principles and practices that are prescribed or
permitted by an insurer's domiciliary state and that insurers must follow
●● Working capital
,Answer: A liquidity measure that is calculated by subtracting current
liabilities from current assets. It is used to determine a company's ability
to finance immediate operations (to buy inventory, finance growth, and
obtain credit)
●● Accounting
Answer: The classification, analysis, and determination of the
appropriate method of reporting the effects of the bookkeeping records
in an organization's financial statements
●● Additional Paid-In-Capital (equation)
Answer: (#shares x price per share) - (#shares x par value)
●● Assets Unique to Insurers
Answer: Premium Receivables
Reinsurance recoverables
Deferred policy acquisition costs
●● Balance sheet
Answer: The financial statement that reports the assets, liabilities, and
owners' equity of an organization as of a specific date
●● Balance Sheet Equation
Answer: Assets - liabilities = shareholder's equity (net worth)
,●● Comprehensive income
Answer: A measure of income that goes beyond that reported on the
income statement by including items such as unrealized gains and losses
●● Cost of Goods Sold
Answer: Beginning inventory + additions to inventory - ending
inventory
●● Current assets
Answer: A balance sheet asset classification that includes case and other
assets that are expected to be converted into cash, sold, or exchanged
within the buisness's normal operating cycle, usually one year
●● Current liabilities
Answer: A balance sheet liability classification that includes obligations
whose payments are reasonably expected to require the use of cash or
the creation of other current liabilities within one year
●● Depreciation expense
Answer: An accounting method that spreads out the expense of a
purchase over the life expectancy of the item
●● Financial statement
, Answer: A document that quantitatively presents an organization's
financial activities or status
●● Form 8-K Required When...
Answer: - Material definitive agreements entered
- Release of non-public information
- Creation of a direct financial obligation
- Change of independent auditor
- Departure or election of directors/principal officers
●● Generally accepted accounting principles (GAAP)
Answer: The rules and procedures to be used in the preparation of an
organization's financial statements
●● Gross Margin (equation)
Answer: Gross profit / sales
●● Gross margin (gross profit margin)
Answer: The percentage of sales remaining after deducting the cost of
goods sold from sales, calculated by dividing gross profit by sales
●● Gross profit
