### Bank's Balance Sheet**Assets:**- Reserves: $200- Loans: $800- Securities: $1,000**Liabilities and Owners' Equity:**- Deposits: $1,600- Debt: $250- Capital (owners' equity): $150---### InstructionsUse the information presented in Southwestern Mutual Bank's balance sheet to answer the following questions.### ScenarioSuppose a new customer adds $100 to his account at Southwestern Mutual Bank, which the owners of the bank then use to make $100 worth of new loans. This would increase the loans account and **increase** the debt account.This would also bring the leverage ratio from its initial value of _____ to a new value of _____.### QuestionWhich of the following is true of the capital requirement? *Check all that apply.*- [ ] Its intended goal is to protect the interests of the depositors.- [ ] Its intended goal is to protect the interests of those who hold equity in the bank.- [ ] It specifies a minimum leverage ratio for all banks.---**Note:** There are dropdown options for selecting changes in accounts and leverage ratios, but these are not displayed here.

Name: ### Bank's Balance Sheet**Assets:**- Reserves: $200- Loans: $800- Sec
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Description: ### Bank's Balance Sheet**Assets:**- Reserves: $200- Loans: $800- Securities: $1,000**Liabilities and Owners' Equity:**- Deposits: $1,600- Debt: $250- Capital (owners' equity): $150---### InstructionsUse the information presented in Southwestern Mut

Financial leverage ratios helps in evaluating the financial leverage of business in terms of its assets, liabilities and equity which indicates how risky or not a business is from the perspective of its debt relative to its assets and equity. A higher financial leverage ratio indicates that a company is using debt to finance its assets and operations whereas a lower financial leverage ratio is an indication that sales and operations of business are sufficient to meet the needs of growing its assets. Calculation of leverage ratio In the given question, a new customer adds $100 to his account at Southwestern Mutual Bank, which the owners of the bank then uses it to make $100 worth of new loans. This will increase loan account to $900 from $800 and will simultaneously increase deposits account to $1,700 from $1,600. This would increase the loans account and increase the deposit account. Calculation of leverage ratio Leverage ratio = Total Assets* Capital *Total Assets = Reserves + Loans + Securities = $200 +$800 +$1,000 = $2,000 $150 $150 = 13 Leverage ratio before borrowing will be 13 Leverage ratio = Total Assets + Increase in reserves Capital = $2,000 + $100 = $2,150 $150 $150 = $14 Leverage ratio after borrowing will be 14 This would bring the leverage ratio from its initial value of 13 to a new value of 14. Estimation of true statement for capital requirement The correct answer will be, " Its intended goal is to protect the interest of the depositors". As depositors expect high rate of interest from the bank in comparison to other banks as a security on their money it should be the goal of the bank to protect the interest by offering good returns and security.

Business

Accounting

Use the information presented in Southwestern Mutual Bank's balance sheet to answer the following questions. Bank's Balance Sheet Assets Liabilities and Owners' Equity Reserves $200 Deposits $1,600 Loans $800 Debt $250 Securities $1,000 Capital (owners' equity) $150 Suppose a new customer adds $100 to his account at Southwestern Mutual Bank, which the owners of the bank then use to make $100 worth of new loans. This would increase the loans account and increase v the debt v account. This would also bring the leverage ratio from its initial value of to a new value of Which of the following is true of the capital requirement? Check all that apply. O Its intended goal is to protect the interests of the depositors. O Its intended goal is to protect the interests of those who hold equity in the bank. O It specifies a minimum leverage ratio for all banks.

Use the information presented in Southwestern Mutual Bank's balance sheet to answer the following questions. Bank's Balance Sheet Assets Liabilities and Owners' Equity Reserves $200 Deposits $1,600 Loans $800 Debt $250 Securities $1,000 Capital (owners' equity) $150 Suppose a new customer adds $100 to his account at Southwestern Mutual Bank, which the owners of the bank then use to make $100 worth of new loans. This would increase the loans account and increase v the debt v account. This would also bring the leverage ratio from its initial value of to a new value of Which of the following is true of the capital requirement? Check all that apply. O Its intended goal is to protect the interests of the depositors. O Its intended goal is to protect the interests of those who hold equity in the bank. O It specifies a minimum leverage ratio for all banks.

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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