When a Bank Suspects That a $1 Million Loan Might

question 89

Multiple Choice

When a bank suspects that a $1 million loan might prove to be bad debt that will have to be written off in the future the bank

• A)can set aside $1 million of its earnings in its loan loss reserves account.
• B)reduces its reported earnings by $1,even though it has not yet actually lost the $1 million.
• C)reduces its assets immediately by $1 million,even though it has not yet lost the $1 million.
• D)reduces its reserves by $1 million,so that they can use those funds later.

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Definitions:

Demand Curve

is a graph showing the relationship between the price of a good or service and the quantity demanded by consumers, typically downsloping to indicate that lower prices increase demand.

Competitive Firm

A company that operates in a market with many competitors, facing a highly elastic demand curve for its product because many substitutes are available.

Supply Curve

A graphical representation showing the relationship between the price of a good or service and the quantity of that good or service that a supplier is willing and able to supply in the market.

Break-Even Point

The point at which total costs and total revenue are equal, resulting in no profit or loss.