The Prompt Corrective Action Rule Implemented by the FDICIA Directed

question 23

Multiple Choice

The prompt corrective action rule implemented by the FDICIA directed the FDIC to

• A)shut down institutions when their net worth became negative.
• B)shut down institutions when their net worth is less than 2% of assets.
• C)encourage institutions to reform the management of their assets in lieu of shutting down.
• D)use its best judgment in responding to insolvent institutions.

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Definitions:

Prepaid Expense

Expenses paid in advance for goods or services to be received in the future, recorded as assets on the balance sheet until they are actually consumed.

Insurance Expense

The cost recognized in the accounting period related to the premiums paid for insurance policies.

Retained Earnings

Profits that a company keeps after dividends are paid to shareholders, used for reinvestment in the business or to pay off debt.

Closing Entry

A closing entry is an accounting procedure used at the end of an accounting period to transfer the balances from temporary accounts to permanent ones, thus preparing the accounts for the next period.