Chihi Airways had the following results for the last three years:

2001 2000 1999

(In thousands of dollars)

Operating expenses $1,550,000 $1,520,000 $1,480,000 Operating revenues 1,840,000 1,670,400 1,620,700 Long-term debt 910,000 900,500 895,000 Operating property 995,000 990,000 985,000 Passenger load factor 66.5% 59.0% 57.8%

Required

a. Calculate the following for 2001, 2000, and 1999:

1. Operating ratio 2. Long-term debt to operating property 3. Operating revenue to operating property

b. Comment on trends found in the ratios computed in (a).

c. Comment on the passenger load factor.

P 12-7.

Required Answer the following multiple-choice questions related to insurance financial reporting.

a. Which of the following does not represent a basic type of insurance organization?

1. Stock companies 4. Fraternal benefit societies 2. Bond companies 5. Assessment companies 3. Mutual companies

b. Which of these statements is not correct?

1. The balance sheet is a classified balance sheet.

2. The asset section starts with investments.

3. The majority of the investments are typically in bonds.

4. For life insurance companies, the investment in real estate may be much greater than that for property-casualty companies.

5. Real estate investments are reported at cost less accumulated depreciation and an allowance for impairment in value.

c. Generally, the largest liability is for loss reserves. The quantification process is subject to a number of estimates. Which of the following would not be one of the estimates?

1. Investment gains/losses 4. Judicial interpretations 2. Inflation rate 5. Mortality estimates 3. Interest rates

d. The manner of recognizing revenue on insurance contracts is unique for the insurance industry. Which of the following statements is not true?

1. In general, the duration of the contract governs the revenue recognition.

2. When the risk differs significantly from the contract period, revenue is recognized over the period of risk in proportion to the amount of insurance protection.

3. For long-duration contracts, revenue is recognized when the premium is due from policyholders.

4. Realized gains and losses from investments are reported in operations in the period incurred.

5. For investment contracts, termination fees are booked as revenue over the period of the contract.

e. Which of the following statements is not true?

1. Statutory accounting has emphasized the balance sheet in its concern for protecting the policyholders by focusing on the financial solvency of the insurance corporation.

2. All 50 states have insurance departments that require annual statements of insurance companies. These annual reports are filed with the state insurance departments in accordance with Statutory Accounting Practices (SAP).

3. After the annual reports are filed with the individual state insurance departments, a testing process is conducted by the NAIC. If a company’s ratio is outside the prescribed limit, the NAIC brings that to the attention of the company.

4. The A.M. Best Company publishes Best’s Insurance Reports, which are published separately for life-health companies and propertycasualty companies. The financial data, including the ratios, are based on the data submitted to the state insurance departments and are thus based on SAP.

5. Many stock insurance companies must register with the Securities and Exchange Commission and file the required forms, such as the annual Form 10-K. Reports filed with the SEC must conform with GAAP.