Question

If, at the end of the year, the net change in cash is $4,000 and the ending cash balance from the year before is $5,000, what is the cash balance at the end of the current year?

A. $9,000
B. $6,000
C. $1,000

Answer 1

The bank's net worth is calculated by subtracting its total liabilities from its total assets. In this case, the assets are $620, and the liabilities are $400, resulting in a net worth of $220.

Step-by-step explanation:

Calculating the Bank's Net Worth

To calculate the net worth of the bank, we need to consider the bank's assets and liabilities. Let's create a T-account balance sheet for the bank:

Assets

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

Liabilities

• Deposits: $400

The total assets of the bank are calculated by adding reserves, government bonds, and loans, which give us $50 + $70 + $500 = $620. The total liabilities are the total deposits, which is $400.

The net worth of a bank is the difference between its total assets and total liabilities. In this case, the net worth is calculated as $620 - $400 = $220. Therefore, the bank's net worth is $220.