The Primary Difference Between the "Payoff" and the "Purchase and Assumption

question 74

Multiple Choice

The primary difference between the "payoff" and the "purchase and assumption" methods of handling failed banks is that the FDIC

• A) guarantees all deposits, not just those under the $250,000 limit, when it uses the "payoff" method.
• B) guarantees all deposits, not just those under the $250,000 limit, when it uses the "purchase and assumption" method.
• C) is more likely to use the "payoff" method when the bank is large and it fears that depositor losses may spur business bankruptcies and other bank failures.
• D) does both A and B of the above.
• E) does both B and C of the above.

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Definitions:

Job-Order Costing System

An accounting method used to allocate costs to specific jobs or orders, typically used in situations where products or services are distinct and made to order.

Predetermined Overhead Rate

An estimated charge per unit of activity used to allocate manufacturing overhead costs to products or job orders, calculated before the period begins based on expected costs and activity levels.

Machine-Hours

A measure of the amount of time a machine is operated in the production process, used as a basis for allocating manufacturing overhead.

Markup

The sum added onto the purchase price of merchandise to cover both overhead expenses and profit, ultimately setting the retail price.