CBA Financial Reporting & Analysis 5

Question 1

A bank recognizes a $2 million gain on the sale of a branch building. On the statement of cash flows using the indirect method, this gain is treated how?

Accepted Answer

Subtracted from net income in the operating section and shown as an investing inflow

Answer

Under the indirect method, non-operating gains are removed from operating activities (subtracted) to avoid double-counting, while the full sale proceeds appear as an investing cash inflow.

Question 2

Which disclosure is required under ASC 825 (Fair Value Option) when a bank elects to measure its own long-term debt at fair value?

Accepted Answer

The cumulative unrealized gain or loss attributable to changes in the bank's own credit risk must be disclosed separately

Answer

ASC 825 requires banks electing the fair value option to separately disclose the portion of fair value changes attributable to changes in their own credit risk, typically in OCI.

Question 3

A bank's Tier 1 leverage ratio is calculated as Tier 1 capital divided by:

Accepted Answer

Average total consolidated assets (on-balance-sheet)

Answer

The Tier 1 leverage ratio uses average total consolidated on-balance-sheet assets as the denominator, unlike risk-based ratios that use risk-weighted assets.

Question 4

When analyzing a bank's noninterest income, which revenue stream is considered MOST volatile and subject to market risk?

Accepted Answer

Trading revenue and securities gains/losses

Answer

Trading revenue and realized/unrealized securities gains are directly tied to market prices and can swing dramatically, making them the most volatile component of noninterest income.

Question 5

Under GAAP, when should a bank discontinue accruing interest on a commercial loan?

Accepted Answer

When full collection of principal or interest is not reasonably expected, typically at 90 days past due

Answer

Regulatory guidance and GAAP practice require banks to place loans on nonaccrual status when full repayment is doubtful, generally when 90 days past due, and to reverse any previously accrued interest.

(CBA) Certified Bank Auditor Practice Test

(CBA) Certified Bank Auditor Practice Test

CBA Financial Reporting & Analysis 5