172k views
2 votes
The stockholders’ equity section of the balance sheet for mann equipment co. at december 31, year 2, is as follows.

User GhostPengy
by
8.4k points

1 Answer

4 votes

Final answer:

The stockholders' equity question pertains to the changes in Singleton Bank's balance sheet due to a new business plan, indicating a shift in assets to include a loan to Hank's Auto Supply while maintaining existing deposits.

Step-by-step explanation:

The student's question about the stockholders' equity section of the balance sheet for Mann Equipment Co., indicates a focus on business finance. When analyzing the impact of a change in a bank's business plan on its balance sheet, we see adjustments in the bank's assets and liabilities. The given scenario shows Singleton Bank altering its asset composition by having $1 million in reserves and providing a $9 million loan to Hank's Auto Supply, while maintaining $10 million in deposits. This demonstrates a reallocation of funds and the creation of a new asset in the form of a loan.

Deposits at the bank stay constant, and the loan generates interest income, hence being recorded as an asset. The loan transaction is executed using a cashier's check rather than cash, which Hank's Auto Supply deposits into its account at First National. This results in a rise in the latter's reserves and deposits.

It's also significant that First National must adhere to a reserve requirement, holding 10% of any additional deposits as required by regulatory policies, but is at liberty to loan the remaining 90%. This example reflects the inherent dynamics in banking operations where deposits lead to lending and create the multiplier effect in the banking system.

User Woodshy
by
7.6k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

9.4m questions

12.2m answers

Categories