AU 60 EXAM QUESTIONS WITH ALL CORRECT ANSWERS NEW UPDATE
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Course
AU 60
Institution
AU 60
AU 60 EXAM QUESTIONS WITH ALL CORRECT ANSWERS NEW UPDATE
What are the major sources of financial data? - Answer- Major sources of financial data include the financial statements of companies and reports from financial reporting services.
Why might a motor vehicle report (MVR) not be perfectly...
AU 60 EXAM QUESTIONS WITH
ALL CORRECT ANSWERS NEW
UPDATE
What are the major sources of financial data? - Answer- Major sources of financial data
include the financial statements of companies and reports from financial reporting
services.
Why might a motor vehicle report (MVR) not be perfectly accurate? - Answer- Rs are
not perfectly accurate, and many accidents or violations never appear on an MVR
because of factors such as variations in reporting violations in different jurisdictions or
clerical errors in processing traffic citations.
What type of information is provided in a 10-K report? - Answer- A 10-K report provides
not only extensive financial information on a publicly traded company, but also a
detailed history of the company; a description of current operations; and, possibly, plans
for the future.
What are some ways an underwriter can verify insurance values submitted by the
insured? - Answer- One way to verify values involves comparing values on the
submission to an outside estimate of the values. Some fee-for-service companies, for
example, estimate building values as part of their reports. Producers often have a "value
estimator" to help determine values, and in many cases, these are the same tools that
underwriters use. Also, underwriters can have the applicant or insured hire an appraisal
company to appraise the property.
What is the difference between a balance sheet and income statement? - Answer- A
balance sheet lists the organization's assets and liabilities at a given point in time, while
an income statement describes the organization's experience over an extended period
of time
When reviewing an income statement's components, how would you define the purpose
of revenue, expenses, and cost of goods sold? - Answer- An organization generates
revenue from sales of its products or services. Expenses are measured by the assets
relinquished or consumed in the process of delivering goods or rendering services to
customers. In retail operations, the cost of goods sold is usually the business's cost to
purchase its merchandise and for shipping. In manufacturing operations, the cost of
goods sold includes the cost of materials to make the product, labor involved, and
, overhead. In a service operation, such as an insurance agency, the cost of goods sold
is minimal or nonexistent because no physical product is being sold
Bradley wants to connect an organization's income statement to its balance sheet by
determining how much of the company's net income is being reinvested for ongoing and
future business needs rather than distributed to the owners as dividends. Which section
of the statement of changes in shareholders' equity should Bradley consult? - Answer-
Bradley should consult the Retained Earnings section.
Rhumeida has been charged with compiling the portion of her company's annual report
that contains management's discussion and analysis (MD&A). What disclosures should
she be sure to include? - Answer- The Securities and Exchange Commission promotes
transparency in financial reporting by requiring that MD&A disclosures include certain
items. Accordingly, Rhumeida should be sure to include: • Liquidity and capital
resources, including off balance sheet arrangements, contractual agreements, and
contingent liabilities • Certain trading activities, involving non-exchange-trading
contracts accounted for at fair market value, including buying or selling private securities
• Relationships and transactions with persons or entities that derive benefits from
nondependent relationships with the company or the company's related parties
Zara is analyzing a business's common-size balance sheet and sees that its inventories
are 35 percent of its total assets. The industry average for inventories is only 15 percent
of total assets. What does this information tell Zara? - Answer- This information should
alert Zara that the business may have obsolete inventory, which could cause a large
loss for the business and potentially create a moral hazard.
What conclusions do you think an underwriter can draw from seeing that an
organization had a net income of $189,900 in 20X5? - Answer- This fact by itself is not
very useful. However, if the underwriter knew that the organization had been earning an
annual net income exceeding $500,000 for the previous five years, the current net
income figure might indicate financial deterioration or a possible moral or morale
hazard. If the business had never before earned more than $50,000, the current income
figure might indicate a stronger, growing business, a reduced likelihood of moral hazard,
or a nonrecurring transaction that affected that year's income.
Martin is a commercial underwriter. How can he minimize the effects of adverse
selection? - Answer- As an underwriter, Martin can minimize the effects of adverse
selection by carefully selecting applicants to insure, charging appropriate premiums for
the accepted loss exposures, and monitoring applications and books of business for
unusual patterns of policy growth or loss and making any needed adjustments.
In addition to monitoring his underwriting decisions, Martin monitors books of business.
What does this process involve, and why do you think it's important? - Answer-
Monitoring a book of business requires evaluating the quality of all the business written
for any group of policies to see whether the policies are profitable and to identify issues
for each type of insurance that indicate a need for changes.
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