ACT 3070 Lecture Notes - Lecture 7: Commercial Bank, Net Income, Risk Premium

76 views5 pages

yellowcattle191

21 Jul 2017

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

A(n) ____ in interest rates could reduce a commercial bank"s expected cash flows because the interest paid on deposits may ____ than the interest earned on loans and investments. Set 7 increase; increase to a greater degree. The risk premium on a commercial bank is ____ related to economic growth and ____ related to management skills. positively; negatively. Interest income generated from all assets is called gross interest income. Interest paid on deposits and borrowed funds is called gross interest expense. Net interest income is the difference between gross interest income and interest expenses and is measured as a percentage of assets. Fees charged by a bank on various services allow the bank to generate: noninterest income. If a bank has short-term deposits and provides long-term fixed rate loans, and interest rates decline over time, its net interest margin should be: rising over time.

Related Questions

Camden Biotechnology began operations in September 2018. The following selected transactions relate to liabilities of the company for September 2018 through March 2019. Camdenâs fiscal year ends on December 31. Its financial statements are issued in April. 2018 On September 5, opened checking accounts at Second Commercial Bank and negotiated a short-term line of credit of up to $15,000,000 at the bank's prime rate (10.5% at the time). The company will pay no commitment fees. On October 1, borrowed $12 million cash from Second Commercial Bank under the line of credit and issued a five-month promissory note. Interest at the prime rate of 10% was payable at maturity. Management planned to issue 10-year bonds in February to repay the note. Received $2,600 of refundable deposits in December for reusable containers used to transport and store chemical-based products. For the SeptemberâDecember period, sales on account totaled $4,100,000. The state sales tax rate is 3% and the local sales tax rate is 3%. (This is a summary journal entry for the many individual sales transactions for the period.) Recorded the adjusting entry for accrued interest. 2019 In February, issued $10 million of 10-year bonds at face value and paid the bank loan on the March 1 due date. Half of the storage containers covered by refundable deposits were returned in March. The remaining containers are expected to be returned during the next six months. Required: 1. Prepare the appropriate journal entries for 2018 and 2019 transactions. 2. Prepare the current and long-term liability sections of the December 31, 2018, balance sheet. Trade accounts payable on that date were $252,000.

blackhare277

Using the financial statements below,please calculate thefollowing

The current position of each company,

The market value of each company,

The amount of profit generated by each dollar ofassets or equity,

How much debt is involved in each company compared to equity,and

How solvent each business is.

THE PEOPLESâ CREDIT UNION LIMITED

Financial statements for THE PEOPLESâ CREDIT UNION LIMITD) forthe year ended December 31, 2017.

Each share costs $5.00

The dividend paid was 3.75%

	December 31, 2017
Cash Resources:
Cash in hand and at bank	11,961,005
Short-term investments	71,000,511
Total cash resources	82,691,516

Other Assets:
Accounts receivable and prepayments	2,738,666
Net loans to members	343,075,646
Long-term investments	71,513,400
Fixed assets	29,202,515
Total Assets	529,221,743

Liabilities:
Accounts payable and accruals	7,800,932
Membersâ deposit savings	34,623,468
Membersâ time deposits (fixed deposits)	90,629,600
Provision for terminal benefits	5,303,180
Retirement benefit obligations	638,200
Membersâ share savings	324,230,903
Total liabilities	463,226,283

Institutional Capital:
Reserve fund	22,992,421
Education fund	1,446,107
Loan protection fund	836,726
Building fund	12,250,000
Investment re-measurement reserve	15,266,397
Undivided earnings	13,203,809
Total institutional capital	65,995,460
Total Liabilities and Institutional Capital	529,221,743

	For the year ended December 31 2017
Income:
Interest on loans	37,358,266
Investment income (net)	2,020,571
Other income	1,262,899
Total Income	40,671,736

Expenditure:
Administrative expenses	7,956,429
Board and committeesâ expenses	1,072,631
Life saving insurance	866,002
Loan protection expense	1,716,236
Loan loss expense	129,286
Interest on membersâ expense	2,170,128
Members education, training and development expenses	1,636,889
Personnel costs	10,635,898
Total expenditure	26,183,499
Net surplus for the year	14,458,237

Other comprehensive income
Items that may be re-classified later as profit or loss
Unrealised (loss)/gain on available-for-sale financialassets	974,380
Items that may be re-classified later as profit or loss
Net actuarial (loss)/gain on retirement benefit obligations	(294,500)
	679,880
Total Comprehensive Income for the year	15,138,117

	Reserve fund	Education fund	Loan protection fund	Building fund	Investment re-measurement fund	Undivided earnings
Balance as at January 1, 2017	21,523,987	1,170,891	711,676	11,500,000	14,292,017	11,819,316
Total comprehensive income for the year					974,380	14,163,737
Appropriation of net surplus for the year:
10 % to the Reserve Fund	1,416,374					(1,416,374)
13.5% to the Education Fund		1,912,105				(1,912,105)
13% to the Loan Protection Fund			1,841,286			(1,841,286)
	22,940,361	3,082,996	2,552,962	11,500,000	15,266,397	20,813,288
Add/(less) adjustments as follows:
Dividends (2016)						(10,160,544)
Entrance fees	52,060					(52,060)
Member education, training and development expenses		(1,636,889)				1,636,889
Transfer to Building Fund				750,000		(750,000)
Loan protection expense			(1,716,236)			1,716,236
Balance as at December 31, 2017	22,992,421	1,446,107	836,726	12,250,000	15,266,397	13,203,809

ceruleanbear388

Required:

1. Correct the recorded activity for Android for Life during July on the attached spreadsheet

2. Correct the balance sheet and income statement for Android for Life in July 2015 on the attached spreadsheet.

3. Is the large decline in cash a concern?

Android for Life Inc.

On July 1, 2015, Andy incorporated her business under the name Android for Life, Inc. Listed below are various transactions that occurred during the remainder of the year:

(a) On July 1, Andy purchased all of Android for Life common stock for $100,000 cash.

(b) On July 1, Android for Life paid $3,000 to an attorney to prepare and file incorporation documents with the State of Texas.

(c) On July 2, Android for Life borrowed $100,000 from a local bank. The bank note required payment of principal in four annual installments of $25,000 beginning on July 1, 2016. In addition, the note specified interest payments of 6%, with the first payment due on July 1, 2016.

(d) On July 3, Android for Life signed a five-year lease on a building to be used as the veterinary clinic. The lease required a payment of $10,000 per month , payable on the first day of each month. Android for Life paid the amount for July on the date the lease was signed.

(e) On July 5, Android for Life paid $150,000 for medical equipment, office furniture, and other equipment.

(f) On July 6, Android for Life purchased various inventory items for $8,500 cash.

(g) Also on July 6, Android for Life purchased $500 worth of office supplies for cash.

(h) On July 28, Android for Life paid employees wages of $8,000 (which included Andyâs salary of $6,000).

(i) During July, Android for Life received $30,000 from clients for office visits and sales of merchandise (food, clothes, etc.).

A review of Android for Life records at July 31, 2015, revealed the following:

(j) Clients still owed Android for Life $3,500 for services performed during July but not yet billed. These amounts are expected to be billed and collected in August.

(k) At the end of July, a physical count of inventory revealed that $1,000 of inventory was still on-hand.

(l) At the end of July, a physical count of office supplies revealed that $100 of supplies were still on-hand.

(m) Depreciation on the equipment for July was estimated to be $1,250.

(n) Interest needs to be recorded on the note payable.

	Assets								Liabilities		Stockholders' Equity
		Accounts		Office	Property, Plant	Intangible	Accumulated		Notes	Interest	Common	Retained
Transaction	Cash	Receivable	Inventory	Supplies	& Equipment	Assets	Depreciation	=	Payable	Payable	Stock	Earnings
purchase of Common Stock	(100,000)										(100,000)
Payment for Articles of Incorporation	(3,000)					3,000
Note / Loan (interest expense on income statement?)	100,000								100,000
Long-term Lease (show on income statement $10k?)	(10,000)											(10,000)
Long-term Equipment	(150,000)				150,000
Inventory Items	(8,500)		8,500
Office Supplies	(500)			500
Wages	(8,000)											(8,000)
Office Visits/ Merchandise	30,000											30,000
Services Performed		3,500										3,500
Inventory Used (income statement expense?)	7,500		(7,500)
Office Supplies Used (income statement expense?)				(400)								(400)
Depreciation on Equipment (income statement expense?)							(1,250)					(1,250)
Interest Expense (income statement expense?)										6,000		(6,000)

Totals	(142,500)	3,500	1,000	100	150,000	3,000	(1,250)		100,000	6,000	(100,000)	7,850

Android Inc.
Income Statement
For the month ended July 31st, 2015


Revenues
Sales and Revenues		33,500
Less: Cost of goods Sold		(7,500)
Gross Profit		26,000


Expenses
Organizational Expenses	3,000
Salaries Expense	8,000
Office Supplies Expense	400
Depreciation Expense	1,250
Interest Expense	500
TOTAL EXPENSE		13,150

NET INCOME		12,850






Android Inc.
Balance Sheet
As at July 31st, 2015
Assets:
Current Assets
Cash	60,000
Accounts Receivable	3,500
Inventory	1,000
Office Supplies	100
Total Current Assets		64,600

Plant Property and Equipment
Plant Property and Equipment	150,000
Less: Accumulated Depreciation	(1,250)	148,750

TOTAL ASSETS		213,350


LIABILITIES
Notes Paybles	100,000
Interest Payale	500
TOTAL LIABILITIES		100,500

Shareholder's Equity
Common Stock	100,000
Retained Earnings	12,850
TOTAL Shareholder's Equity		112,850

TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY		213,350

yellowchimpanzee681

ACT 3070 Lecture Notes - Lecture 7: Commercial Bank, Net Income, Risk Premium

Document Summary

Get access

Related Documents

ACT 3070 Lecture Notes - Lecture 10: Federal Perkins Loan, Home Equity Loan, Adjustable-Rate Mortgage

ECONOM 3229 Lecture 12: Econ 3229 Money and Banking Chapter 12.docx

FI 413 Lecture Notes - Lecture 8: Asset, Interest Expense, Profit Margin

Related Questions