Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Introduction to Investments in Securities

Financial Accounting

7. Receivables and Investments

Introduction to Investments in Securities

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Multiple Choice

Which of the following best explains why banks consider interest on loans to be important?

Interest on loans is a primary source of revenue for banks, allowing them to earn a profit from lending activities.

Interest on loans is used solely to pay taxes owed by the bank.

Interest on loans is required by law to be distributed to shareholders.

Interest on loans is the only way banks can attract new customers.

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Verified step by step guidance

Understand the role of interest on loans in the banking industry. Banks earn revenue primarily by lending money to borrowers and charging interest on those loans. This interest is a key component of their profitability.

Analyze the options provided in the question. The correct explanation should align with the fundamental purpose of interest on loans in banking operations.

Option 1 states that interest on loans is a primary source of revenue for banks, allowing them to earn a profit from lending activities. This is accurate because banks use the interest earned to cover operational costs, pay dividends, and reinvest in their business.

Option 2 claims that interest on loans is used solely to pay taxes owed by the bank. This is incorrect because interest revenue is not exclusively allocated for taxes; it serves broader financial purposes for the bank.

Option 3 and Option 4 are also incorrect. Interest on loans is not legally required to be distributed to shareholders, nor is it the sole method for attracting new customers. The primary reason banks consider interest on loans important is its role as a major revenue source.