Question

A bank correction of an error from recording a $50 check paid as $500 appears on the bank statement as a memorandum that the account balance.

a) True
b) False

Answer 1

To create a T-account balance sheet, list the bank's assets (reserves, loans, and government bonds) on the left side and liabilities (deposits) on the right. The bank's net worth is calculated by subtracting the liabilities from the assets, which in this case results in a net worth of $220.

Step-by-step explanation:

Setting Up a T-Account Balance Sheet

To set up a T-account balance sheet for the bank with the given information, we will divide the account into two sides: assets on the left and liabilities plus net worth (equity) on the right.

Assets

• Reserves: $50
• Loans: $500
• Government Bonds: $70

Liabilities

• Deposits: $400

Now, to calculate the bank's net worth, we subtract the liabilities from the assets:

Net Worth = (Reserves + Loans + Government Bonds) - Deposits

Net Worth = ($50 + $500 + $70) - $400

Net Worth = $220

This means the bank's net worth, also referred to as the bank's capital, is $220.