2022 CEC quiz 4 Chpt6&7

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FINANCE 4310 – CREDIT ESSENTIALS FOR BANKS (aka RMA Credit Essentials Course) EXAM #3 NAME:________________________________ INSTRUCTIONS: Select the best answer , then briefly write a statement of support for your answer. As an example, ‘I think B is the most correct answer because …. DUE DATE: Friday, April 8 Chapter 6: Third Party Support and Retail Credit Reporting 1. Identify the use of and the support provided by guarantees and other support. CTPS_4. Crown Properties, LLC develops and owns a number of fully-occupied commercial properties. Crown Properties’ ownership includes the following: Crown Development Corporation, a major regional developer with substantial financial resources (15%), Maxwell Crown, largest shareholder of Crown Development and a customer of your bank’s trust department (5%), and Maxwell’s four children, all of whom are under the age of 22 (20% each). In setting the structure for a loan to Crown Properties, which of the following support would provide the bank the most protection? a. Maintenance agreements from each of the 20% owners of Crown Properties. b. A collection guaranty from Crown Development Corporation c. Comfort letters from each of the six owners of Crown Properties d. Payment guaranties from Crown Development and Maxwell Crown

FINANCE 4310 – CREDIT ESSENTIALS FOR BANKS (aka RMA Credit Essentials Course) EXAM #3 2.Identify the link between personal credit sources and commercial lending. PCBS_1. Personal credit scores are relevant when considering a commercial loan to a business because: a) They provide an indication of ability to pay rent b) They are valid indicators as to business management ability c) They are useful in determining the business loan amount that can be qualified d) They provide information about loans guaranteed by the business owner 3. Identify the three reporting agencies and how do they get their data. PCBS_2. Which of the following companies report consumer credit information? a) Experian and TRW b) Fair-Isaac and Equifax c) TransUnion and TRW d) Equifax and Experian 4. Identify the components and weighting of a personal credit score PCBS_3. Which of the following actions is most likely to negatively impact an individual’s credit score? a) Paying off the balance on a revolving card instead of making monthly payments. b) Underutilization of a home equity line of credit. c) Closing out a well-established credit card account with good payment history. d) Applying for a new auto loan every five years. Chapter 7: Analyzing Business Tax Returns 5. Identify areas in which fraud/irregularities can be found ABTR_1. Where is a lender most likely to look for evidence of a fraud in financial statements received from a borrower in support of a loan request? A. Understating the balance of receivables B. Overstating payables owed to the trade C. Including contingent sales in revenues

FINANCE 4310 – CREDIT ESSENTIALS FOR BANKS (aka RMA Credit Essentials Course) EXAM #3 D. Accelerating recognition of expenses r 6. Identify characteristics, advantages and disadvantages of various entities—C corporations, S corporations, partnerships and LLCs. ABTR_2A. Which business entity exposes an owner to potential liability for business obligations? A. C corporation B. S corporation C. General partnership D. Limited liability company 7. Identify characteristics, advantages and disadvantages of various entities—C corporations, S corporations, partnerships and LLCs ABTR_2B. Which type of entity is potentially subject to a "built-in gains tax"? a) C corporation b) S corporation c) General partnership d) Limited liability company 8. Identify steps in the cash flow estimation process. In estimating cash flow from a business tax return, which of the following steps are taken? a. Subtract depreciation and amortization b. Add decreases in accounts receivable balances c. Subtract increases in account payable balances d. Add dividends and distributions paid 9. Identify key content in tax forms relevant to credit and cash flow analysis. ABTR_4A. When a corporate tax return indicates that it is a consolidated return, it signifies that: A. There are intercompany loans and advances. B. A list of subsidiaries is provided. C. An additional controlled group tax is due. D. There are parent guaranties of subsidiary debt.

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FINANCE 4310 – CREDIT ESSENTIALS FOR BANKS (aka RMA Credit Essentials Course) EXAM #3 10. Identify key content in tax forms relevant to credit and cash flow analysis. ABTR_4C. When reviewing a Form 4562, what information will a lender learn about the business? a) The amount of any capital gains tax payments. b) The amount of proceeds received from used equipment sales. c) The amount of proceeds from securities sales. d) The amount of any fixed asset purchases. 11. Identify fundamental tax principles ABTR_5A. Tax law provides for a variety of deductions that can be used by businesses or their owners (if the business is taxed at the ownership level). Which of the following deductions would be available only to C corporations and not to S corporations, partnerships, LLCs and their owners? A. Domestic production activities deduction B. Net operating loss carryforwards C. Dividends received deduction D. Section 179 expense deduction 12. Identify fundamental tax principles ABTR_5C. XYZ Partnership submitted a current tax return showing the following balance sheet entries. Balance Sheet Beginning of Tax Year End of Tax Year Accounts Receivable $5,675 $8,905 Inventory 15,450 13,360 Based on the entries above, how much did the combined asset changes impact the partnership’s operating cash flow in the current year? a) ($3,575) b) ($1,745) c) ($1,485) d) ($1,140) Other Current Assets 2,105 2,450