Answered: Assets- reserves: 75000 loans : 430000…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Assets- reserves: 75000 loans : 430000

liabilities : deposites : 500000 net worth : 5000

a) Suppose that a bank has the following balance sheet and you deposit $5000 in currency into your cheque account at such bank. Use a T-account to show the initial impact of this transaction on the bank’s balance sheet. What is the impact of this transaction on M1?

(b) If the bank holds a reserve ratio of 0.1, what is the maximum amount the bank can loan out. Suppose that the bank intends to loan out the maximum amount it can. Show the impact of the loan on the balance sheet.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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