NOTE 5: ALLOWANCE FOR LOAN LOSSES

question 177

Essay

NOTE 5: ALLOWANCE FOR LOAN LOSSES

The allowance for loan loss is maintained at a level to absorb probable losses inherent in the loan portfolio. This allowance is increased by provisions charged to operating expense and by recoveries on loans previously charged off, and reduced by charge-offs on loans.

The following is a summary of the changes in the allowances for loan losses for three years:

Winchester also reported (in thousands) in its comparative balance sheet that it held Loans receivable, net, of $6,869,11 and $6,819,209 at December 31, 2018, and December 31, 2017, respectively.
-If Winchester is using the balance sheet approach to determining loan losses and the Allowance account balance, what percentage did it use in 2018?

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Definitions:

Required Reserves

The minimum amount of reserves a bank needs to hold as mandated by central banks to ensure financial stability and liquidity.

Demand Deposits

Demand Deposits are bank account funds that can be withdrawn at any time without any advance notice to the bank.

Original Maturity

The initial fixed period for which a financial instrument, such as a bond or loan, is issued before it is due for repayment.

Required Reserves

The least amount of money that a bank is required to keep on hand as a safeguard for deposits, in compliance with the rules set by central bank authorities.