Question

A bank has deposits of $400.Itholdsreservesof$50. It has purchased government bonds worth $70.Ithasmadeloansof$500. Set up a T-account balance sheet for the bank, with assets and liabilities, and calculate the bank’s net worth.

Short answer

The Bank Net worth is calculated by the formula given below:

$Networth=Totalassets-Totalliabilities.$

=$\$220$

Step-by-step solution

Concept Introduction

The account balance is the traditional form of the financial records which is mainly used for double entry bookkeeping. It has two sides for recording the financial data which are liabilities side and Assets side. Liabilities mainly records the credit balances and Assets mainly involve the debit balances.

:Explanation of Solution

Given:

The bank with the deposits of $\$400$. They keep$\$50$as reserves, purchased the government bonds of$\$70$and loan out $\$500$. The T table can be formed as done below:

The Bank Net worth is calculated by the formula given below:

$Networth=Totalassets-Totalliabilities$

localid="1645839421084" $=$$\$620-\$400$

localid="1645839448607" $=\$220$