Series 27 Worked Scenarios: Capital, Reserves and Funding

How to approach Series 27 scenario questions

The Series 27 — Financial and Operations Principal Qualification Examination, administered by FINRA, tests whether a candidate can apply financial and operational principal judgment in broker-dealer settings. Scenario questions often describe a firm, account, operational event, financial condition, record, filing, or supervisory issue, then ask for the best action or interpretation.

The strongest approach is not to react to the first familiar term. A Series 27 scenario may mention net capital, customer protection, reserve computations, books and records, regulatory reporting, subordinated loans, inventory, fails, aged items, or account classifications. The tested issue is usually narrower than the full fact pattern.

Your job is to identify:

• Who the relevant party is
• What role the firm has
• What changed
• Which rule concept is being triggered
• What documentation or computation is required
• What the Financial and Operations Principal should do next

Calculate the requested result or identify the obligation supported by the facts. Cautious language, lengthy documentation steps or “escalate” are not substitutes for the applicable rule.

Worked calculations

These are original teaching cases, separate from the scored practice set. Work each case on paper before opening its solution. Amounts are in U.S. dollars; stated assumptions limit the example, not the full exam syllabus.

1. Net capital after two accounting corrections

An established basic-method firm has reported net worth of $1,200,000, qualifying subordinated liabilities of $300,000, nonallowable assets of $180,000 and total applicable haircuts/other charges of $120,000. Net worth omits a $40,000 accrued expense and a $60,000 inventory markdown. The charge total already reflects the marked-down inventory, so no further haircut adjustment is needed. Corrected AI is $9,000,000; the fixed minimum is $250,000. No other adjustments apply.

Find corrected net capital, required capital, excess capital and the AI ratio.

2. Debt–equity: adding equity versus adding debt

A corporation has $700,000 in satisfactory subordinated debt that does not qualify as equity under paragraph (d), and $200,000 in regulatory equity. No other adjustments affect its debt–equity total.

Find the current percentage and the cash equity contribution needed to reduce it to 70%. Would a new $100,000 non-equity subordinated loan do the same?

3. Reserve balance, extra deposit and customer securities

A reviewed customer reserve computation has $12,000,000 of eligible credits and $9,400,000 of eligible debits after every required reduction and adjustment. The customer reserve account already holds $2,000,000 in qualifying assets. A separate stock-record review identifies fully paid customer securities outside possession or a qualifying control location.

Calculate the required reserve balance and extra deposit. Does making that deposit resolve the securities issue?

4. Funding pressure from a margin account

A long margin account has market value of $80,000 and a debit balance of $60,000. Its applicable maintenance requirement is 30%, stipulated for this teaching case. Ignore fees and other positions; the debit stays fixed before any deposit.

Find equity, the maintenance shortfall, and the market value that would remove the shortfall without a cash deposit.

5. Meeting a minimum while triggering a notice

An established basic-method firm computes AI of $6,600,000 and net capital of $500,000. Its applicable fixed minimum is $250,000; no special requirements apply.

Does it meet its net-capital minimum? Does that settle the SEC notification question?

Choose targeted practice from your result

Read the relevant lesson, use Series 27 topic practice , and review explanations. Later, try changed facts without the solution visible. Use a mixed mock after covering all functions; repeating these five cases measures recall as well as understanding.

Start by identifying the firm, account, and role

Before you evaluate the rule issue, identify the business context. Series 27 scenarios often depend on the firm’s role, not just the label attached to a transaction.

Ask:

• Is the firm carrying customer accounts, introducing accounts, clearing for others, or operating in another capacity?
• Is the account a customer account, firm/proprietary account, affiliate account, suspense account, error account, or operational control account?
• Is the item related to customer assets, firm capital, firm inventory, financing, expenses, liabilities, or regulatory reporting?
• Is the scenario about the broker-dealer itself, an associated person, a customer, a counterparty, a bank, a clearing organization, or a regulator?
• Is the event current, projected, discovered after the fact, or part of a periodic computation?

This first step prevents a common reasoning problem: applying a customer-account rule to a firm account, or applying a firm-capital concept to an item that belongs in a customer protection or books-and-records analysis.

Quick role check

When you read the first two sentences, pause and label the scenario:

• Firm condition: capital, liquidity, tentative net capital, deductions, liabilities, revenue, expenses
• Customer protection: possession or control, reserve computation, customer credits or debits, segregation treatment
• Books and records: blotters, ledgers, trial balances, confirmations, account records, supporting documentation
• Regulatory reporting: filings, amendments, notifications, financial statements, schedules, discovery of an error
• Operational control: fails, aged items, suspense items, stock record differences, reconciliation breaks
• Supervisory responsibility: approval, review, escalation, written procedures, evidence of review

Once you know the category, the decision point becomes easier to isolate.

Find the actual decision point

A scenario may contain several facts, but the question stem usually asks for one decision. Underline or mentally restate the final question before choosing an answer.

Common Series 27 decision points include:

• Classification: How should an asset, liability, account balance, receivable, payable, or securities position be treated?
• Computation: What adjustment, deduction, charge, or reserve treatment is required based on the facts given?
• Timing: When must the firm compute, file, amend, reconcile, correct, or notify?
• Authority: Who must approve, review, sign, supervise, or evidence the action?
• Documentation: What record must support the entry, computation, adjustment, or filing?
• Escalation: What should the FINOP do when a deficiency, error, capital issue, or record discrepancy is discovered?
• Best next action: What is the most defensible immediate response given incomplete, conflicting, or risk-sensitive facts?

A useful habit is to convert the question into a short command:

• “Determine the correct treatment of this receivable.”
• “Identify whether this item affects customer reserve.”
• “Choose the proper response to a net capital concern.”
• “Select the required record or supervisory evidence.”
• “Decide what must happen before the filing is submitted.”

If you cannot state the decision point in one sentence, reread the stem before reviewing the answers.

Separate operative facts from background facts

Series 27 scenarios often include realistic operational detail. Not every detail changes the answer.

Operative facts usually include

Look closely at facts that affect regulatory treatment:

• The type of account or party involved
• Whether the amount is secured, unsecured, aged, reconciled, documented, collectible, or supported
• Whether the item belongs to the firm, a customer, an affiliate, or another broker-dealer
• Whether the firm has possession or control
• Whether a receivable or asset is allowable or non-allowable under the rule concept being tested
• Whether a liability is recorded, contingent, subordinated, accrued, or omitted
• Whether an error affects a filed report, current books, capital computation, reserve formula, or supervisory record
• Whether a required computation, reconciliation, or filing has already occurred
• Whether written evidence, approval, or notice exists

Background facts often include

Do not overvalue facts that provide context but do not change the rule analysis:

• The size or reputation of a customer unless it affects the required treatment
• A manager’s preference if the rule requires a specific computation, record, or filing
• The firm’s business plan unless the question asks about prospective capital or operational readiness
• A product name when the issue is actually books and records, capital treatment, or segregation
• A profitable business outcome if the regulatory issue is a deficiency, omission, or control failure

The exam is not asking what seems commercially convenient. It is asking what is defensible under the financial responsibility, operational control, recordkeeping, and reporting concepts tested by Series 27.

Use a decision sequence for FINOP scenarios

When a question feels dense, use the same sequence every time.

1. Identify the regulatory area

Ask which broad area the facts point to:

• Net capital or financial condition
• Customer protection or reserve treatment
• Books and records
• Financial reporting or regulatory filing
• Supervision, approval, and evidence of review
• Operational reconciliations, fails, breaks, or aged items
• Funding, subordinated debt, liabilities, or expense recognition

This keeps you from solving the wrong problem.

2. Identify the triggering event

A Series 27 scenario often turns on a trigger:

• A capital level changes
• A computation reveals a deficiency
• A filing contains an error
• A receivable becomes aged or unsupported
• A reconciliation difference appears
• Customer funds or securities are not where records say they are
• A liability or expense was omitted
• A new business line affects the firm’s financial responsibility obligations
• A supervisory review was not evidenced

Ask: “What happened that requires action?”

3. Determine whether the issue is preventive, corrective, or reporting-related

The best answer depends on timing.

• Preventive: The firm should not proceed until capital, documentation, approval, or controls are in place.
• Corrective: The firm discovered a deficiency, break, or error and must correct records, computations, or controls.
• Reporting-related: The issue affects a regulatory filing, notice, amendment, or documented review.

A scenario about discovering an error after a filing is different from a scenario about preparing a filing. A scenario about a projected deficiency is different from a scenario about an existing deficiency.

4. Apply the fact that changes the treatment

Most scenarios contain one fact that changes the answer. Examples include:

• The receivable is from an affiliate rather than a customer.
• A balance is unsupported by current records.
• A securities position is not in possession or control.
• A liability has been incurred but not recorded.
• A reconciliation difference is unresolved.
• A proposed capital contribution is not yet properly documented.
• The firm wants to include an asset before it is allowable.
• A filing was submitted using incorrect books.

Do not choose an answer until you identify the fact that changes the treatment.

5. Choose the answer that satisfies the full obligation

The best answer should usually do more than “look into it.” It should address the regulatory consequence.

Prefer answers that:

• Correct the books or computation
• Preserve required documentation
• Escalate to the proper principal or function when needed
• Prevent use of unsupported figures
• Reflect the proper account classification
• Require an amended filing or notification when the facts call for it
• Put the firm in compliance before allowing the activity to continue

Avoid answers that rely only on informal assurance, business convenience, or delayed review when the scenario describes a current regulatory issue.

Read net capital scenarios carefully

Net capital scenarios test classification, deduction, liability recognition, and operational judgment. They are rarely solved by simply noticing the words “capital” or “asset.”

When reading a net capital scenario, ask:

• Is the item an asset, liability, revenue, expense, receivable, payable, inventory position, or financing arrangement?
• Is the item allowable or subject to a deduction based on the facts given?
• Is the amount supported by documentation and current records?
• Is there an aged, unsecured, doubtful, or affiliate-related component?
• Has the firm incurred an obligation that should be recorded?
• Is the scenario asking for treatment in the computation or for the FINOP’s next action?
• Is the firm trying to rely on proposed funding that is not yet effective or properly documented?

Capital scenario habit

Use this short sequence:

1. Start with the books. Are the firm’s records accurate and complete?
2. Classify the item. Asset, liability, revenue, expense, position, receivable, payable, or capital contribution?
3. Check allowability. Does the scenario give a reason the item cannot be fully counted?
4. Consider required deductions or charges. Apply the exam concept indicated by the facts.
5. Assess the result. Does the computation create a deficiency, filing issue, or notification issue?
6. Select the action. Correct, document, compute, report, or escalate as required.

Short example

A firm discovers that an expense incurred before month-end was not recorded before preparing its financial report.

A weak reading focuses on whether the expense is large or whether management expects revenue next month. A stronger reading asks:

• Was the obligation incurred?
• Should the books reflect it?
• Does it affect the financial report or net capital computation?
• Is correction or amendment required based on the timing and facts?

The best answer will usually address the omitted liability or expense and its regulatory reporting effect, not merely management’s expectation that the firm will remain profitable.

Read customer protection and reserve scenarios by identifying whose property is involved

Customer protection questions depend heavily on ownership, control, and account classification. Do not treat all balances or securities positions the same.

Ask:

• Is the scenario about customer funds, customer securities, firm assets, proprietary positions, or another broker-dealer’s accounts?
• Does the firm have possession or control?
• Are the records consistent with the physical or depository location of the securities?
• Is the balance a customer credit, customer debit, proprietary item, suspense balance, or unresolved difference?
• Does the scenario involve a computation, deposit, withdrawal, reconciliation, or correction?
• Is the answer asking for reserve treatment or operational action?

Customer protection scenario habit

Separate the issue into three questions:

1. Who owns or is entitled to the asset or balance?
2. Where is it recorded and where is it actually held?
3. What action does the discrepancy require?

If the records and reality do not match, the best answer often requires correction, reconciliation, or treatment in the relevant computation before relying on the figure.

Short example

A scenario says a customer securities position appears on the firm’s stock record, but a reconciliation shows the position is not located where the records indicate.

The key issue is not just that the customer has a position. The key issue is the discrepancy between the records and the actual control location. The best answer should address the break, documentation, and required operational or computation treatment.

Treat books and records as the foundation

For Series 27, books and records are not administrative afterthoughts. They are the basis for computations, filings, supervision, and regulatory evidence.

When a scenario mentions records, ask:

• Which record is wrong, missing, incomplete, or unsupported?
• Does the error affect a ledger, blotter, trial balance, stock record, account statement, confirmation, computation, or filing?
• Is there evidence of review or approval?
• Is the firm relying on oral explanation instead of documented support?
• Does the correction require a journal entry, reconciliation, supervisory review, or amended report?
• Is the recordkeeping issue isolated, recurring, or tied to a control failure?

Documentation-first reasoning

A FINOP answer should generally be based on supportable records, not assumptions.

A defensible answer will often include one or more of these actions:

• Obtain or verify supporting documentation
• Correct the books before completing the computation
• Reconcile conflicting records
• Evidence supervisory review
• Retain records in the required form and location
• Escalate unresolved differences
• Prevent submission of inaccurate regulatory information

If an answer says to proceed using an unsupported estimate when the scenario calls for a required computation or filing, be skeptical.

Watch for authority and approval clues

Series 27 scenarios often test whether the right person or function must review, approve, sign, or supervise an action. This is especially important when a business employee wants to move quickly.

Ask:

• Is this action within the FINOP’s financial responsibility area?
• Does the scenario require principal review or supervisory evidence?
• Is the person proposing the action authorized to do so?
• Is written approval, board or partner action, lender documentation, or regulatory notice relevant?
• Does the firm’s procedure require review before the transaction, filing, or adjustment?
• Is the answer trying to substitute informal approval for required documentation?

Practical authority check

When a scenario includes a statement like “the branch manager says,” “operations believes,” “the CFO expects,” or “the trader requests,” pause. Those facts may show business pressure, but they do not automatically establish regulatory authority.

The best answer usually follows the required approval and documentation path, especially if the action affects:

• Net capital
• Customer reserve
• Regulatory filings
• Books and records
• Financing arrangements
• Capital withdrawals or contributions
• Corrections to prior reports
• Supervisory evidence

Read regulatory reporting scenarios by timing and materiality of the event

Reporting scenarios often turn on when the issue was discovered and whether the report or notice is affected.

Ask:

• Has the report already been filed, or is it being prepared?
• Are the underlying books accurate?
• Did the firm discover an error, omission, capital issue, or operational deficiency?
• Does the issue affect a computation, filing, schedule, or certification?
• Is the scenario asking whether to amend, notify, correct, document, or wait?
• Is the problem current, historical, or projected?

A known error needs correction, and an established notice trigger has its own deadline. Do not delay a required notice while completing the correction. Where the facts establish only an unexplained difference, investigate its effect rather than inventing a capital deficiency.

Short example

A firm finds a reconciliation error after a periodic financial filing has been submitted. The facts show the error changes a figure used in the filing.

The key decision is not whether the employee who found the error acted in good faith. The key decision is whether the books and filed information must be corrected and whether additional reporting action is required based on the corrected facts.

Convert calculation scenarios into classification scenarios first

Some Series 27 questions include numbers, but the difficult part is often deciding what the numbers represent. Before calculating, classify.

Ask:

• Which amounts are included?
• Which amounts are excluded?
• Which amounts require deductions, charges, or adjustments?
• Which balances are customer-related, proprietary, affiliate-related, secured, unsecured, aged, or unsupported?
• Is the question asking for the computation result or the required action after the result is known?
• Are any figures stale, estimated, or inconsistent with the books?

Do not start arithmetic until you know the treatment of each item.

Calculation checklist

Use this checklist when numbers appear:

• Identify the rule concept being tested.
• Label each amount before doing math.
• Cross out figures that are background only.
• Watch for signs, such as debit versus credit or receivable versus payable.
• Apply the sequence required by the concept.
• Compare the result to the question asked.
• Choose the answer that follows from the result, not merely the closest number.

If the answer choices are actions rather than numbers, the calculation may only be a step toward the correct supervisory or reporting response.

Apply the specific obligation in “best action” questions

Many Series 27 scenarios ask what the FINOP should do. The best answer is usually the one that is timely, documented, and regulatorily defensible.

Strong best-action answers often say to:

• Correct books and records before relying on them
• Recompute a required amount after correcting an error
• Obtain proper documentation before recognizing a capital item or financing treatment
• Escalate a deficiency or unresolved break
• File, amend, or notify when the facts require it
• Prevent a transaction that would create or worsen a financial responsibility problem
• Evidence review and retain support

Weaker answers often say to:

• Wait until the next routine cycle despite a current issue
• Rely on oral assurances
• Ignore an immaterial-sounding discrepancy without analysis
• Use projected profits to offset a present deficiency
• Treat customer and firm items interchangeably
• Proceed before required documentation or approval exists

The exam is looking for the answer that a responsible Financial and Operations Principal could defend from the facts given.

Handle incomplete facts without over-assuming

Scenario questions may not give every detail you would want in real practice. Use the facts provided. Do not add assumptions that make a tempting answer work.

Use explicit status facts such as “approved,” “proposed” or “unresolved.” Do not invent a missing approval or documentation failure merely because a focused calculation omits that detail. Equally, do not assume that a stated unresolved break has been corrected.

At the same time, do not reject an answer because it lacks an operational detail that the question is not testing. Focus on the decision point.

A practical rule:

• If an answer requires a favorable fact not stated in the question, be cautious.
• If an answer directly addresses the stated deficiency, classification, computation, or documentation issue, give it serious consideration.

Use answer choices as a diagnostic tool

After reading the scenario and question stem, review the answer choices for the issue they imply.

Answer choices may divide by:

• Different classifications of the same item
• Immediate correction versus delayed review
• Required documentation versus informal approval
• Firm treatment versus customer treatment
• Reporting action versus internal-only action
• Current financial condition versus projected future condition
• Principal responsibility versus clerical processing

If two answers look plausible, compare them against the exact trigger in the scenario.

Ask:

• Which answer uses all the important facts?
• Which answer ignores a required record, filing, computation, or approval?
• Which answer depends on an assumption not stated?
• Which answer follows the applicable rule without inventing an additional obligation?
• Which answer is the best next action, not merely a later step?

A compact Series 27 scenario workflow

Use this workflow during final review and timed practice:

1. Read the question stem first. Know whether you are choosing a treatment, computation, record, filing, approval, or next action.
2. Label the party and role. Customer, firm, affiliate, counterparty, clearing relationship, or regulator.
3. Identify the financial responsibility area. Net capital, customer protection, books and records, reporting, supervision, or operations.
4. Find the trigger. Error, omission, aged item, deficiency, break, new activity, funding event, filing issue, or control failure.
5. Classify the key item. Asset, liability, receivable, payable, securities position, customer balance, proprietary item, or documentation requirement.
6. Check support. Is there evidence, reconciliation, approval, or required documentation?
7. Apply the rule concept. Use the facts given, not assumptions.
8. Choose the defensible action. Correct, compute, document, escalate, file, amend, notify, or stop the activity if needed.

This sequence is especially useful when a question includes both operational facts and financial numbers.

Mini-scenarios for practice reasoning

Scenario 1: Unsupported receivable

A broker-dealer includes a receivable in its internal capital calculation. The scenario states that the receivable is old, not currently supported by documentation, and management expects it will be collected.

Reasoning path:

• The decision point is treatment in the financial computation.
• The operative facts are age, lack of support, and reliance on management expectation.
• The issue is not whether collection is possible. It is whether the receivable is supportable for the required treatment.
• The best answer should address the required adjustment, deduction, documentation, or correction before relying on the amount.

Scenario 2: Filing prepared from incorrect books

A firm prepares a regulatory filing and later discovers that a liability was omitted from the books used to prepare it.

Reasoning path:

• The decision point is not simply “who made the bookkeeping error.”
• The omitted liability affects records and may affect the filing or computation.
• The FINOP response should begin with correcting the books and determining the impact on the filed information.
• If the corrected facts trigger additional reporting steps, the answer should reflect that.

Scenario 3: Reconciliation difference involving customer securities

A reconciliation shows a difference between the firm’s stock record and the location record for customer securities.

Reasoning path:

• The issue involves customer protection, records, and control.
• The important fact is the unresolved difference.
• The best answer should not treat the records as reliable until the break is resolved or properly treated.
• A defensible action includes reconciliation, documentation, escalation, and any required computation or record correction.

Scenario 4: Proposed capital support

A firm wants to include proposed funding in its financial condition analysis. The scenario says the funding has been discussed but not formally completed or documented.

Reasoning path:

• The key issue is whether the firm can rely on the funding now.
• A business expectation is not the same as completed, supportable capital treatment.
• The best answer should require proper documentation and effective completion before relying on the funding for regulatory purposes.

Build final-review practice habits

Scenario skill improves when you practice the decision sequence, not just individual facts.

During final review:

• After each practice question, write the decision point in one sentence.
• Mark the one or two facts that controlled the answer.
• Identify whether the question tested classification, computation, documentation, authority, reporting, or best action.
• Rework missed questions without looking at the answer choices first.
• Practice explaining why the correct answer is more defensible than the second-best answer.
• Keep a short list of rule concepts that require you to slow down, such as net capital adjustments, customer reserve treatment, aged or unsupported items, filing corrections, and reconciliation breaks.

For timed practice, use a brief routine:

• Stem first
• Role and account second
• Trigger third
• Treatment or action fourth
• Answer choice comparison last

Practical next step

Use this guide with Series 27 scenario practice sets. For each question, identify the firm role, the regulatory area, the triggering fact, and the best next action before checking the answer. Then move into focused topic drills for weak areas and finish with timed mock exams to build speed without losing FINOP judgment.