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.