Imagine that Mr John takes out a loan for £10,000 to start a new business. The bank credits the £10,000 to Mr John's current account. Choose AT LEAST ONE correct answer. a. Since Mr John has been credited with the £10,000 in his current account, yet he now owes the bank £10,000, the total amount of money in the economy has remained the same. b. The extra £10,000 in Mr John's current account is an asset for the bank, because this is money that he owes to them. c. The loan is an asset for the bank. d. At the point that the loan is made, the bank's net worth decreases and Mr John's net worth increases by the same amount, £10,000.
Imagine that Mr John takes out a loan for £10,000 to start a new business. The bank credits the £10,000 to Mr John's current account. Choose AT LEAST ONE correct answer. a. Since Mr John has been credited with the £10,000 in his current account, yet he now owes the bank £10,000, the total amount of money in the economy has remained the same. b. The extra £10,000 in Mr John's current account is an asset for the bank, because this is money that he owes to them. c. The loan is an asset for the bank. d. At the point that the loan is made, the bank's net worth decreases and Mr John's net worth increases by the same amount, £10,000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Imagine that Mr John takes out a loan for £10,000 to start a new business. The bank credits the £10,000 to Mr
John's current account.
Choose AT LEAST ONE correct answer.
a. Since Mr John has been credited with the £10,000 in his current account, yet he now owes the bank
£10,000, the total amount of money in the economy has remained the same.
b. The extra £10,000 in Mr John's current account is an asset for the bank, because this is money that he owes
to them.
c. The loan is an asset for the bank.
d. At the point that the loan is made, the bank's net worth decreases and Mr John's net worth increases by
the same amount, £10,000.
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