Question

Capital as of December 31, 20Y9, assuming that assets increased by $77,500 and liabilities increased by $40,000 during 20Y9.

a) $37,500
b) $77,500
c) $40,000
d) $117,500

Answer 1

The bank's net worth is calculated by subtracting total liabilities from total assets. With $620 in assets and $400 in liabilities, the bank's net worth comes to $220.

Step-by-step explanation:

To answer the student's question, we need to understand the basic accounting equation, which is Assets = Liabilities + Owner's Equity. This equation must always balance. In the context of a bank's balance sheet, the assets would typically include reserves, loans, and any securities like government bonds the bank holds. Liabilities primarily consist of the deposits from customers. Owner's equity (or net worth) reflects the capital that is owned by the shareholders.

Using the provided information, we can set up a T-account balance sheet for the bank. On the asset side, we have reserves of $50, government bonds worth $70, and the value of loans made which is $500. The total assets amount to $620. On the liability side, there are deposits of $400. To calculate the bank's net worth, we subtract the total liabilities from the total assets.

So, the calculation would be:

Net Worth = Total Assets - Total Liabilities
Net Worth = $620 (reserves + bonds + loans) - $400 (deposits)
Net Worth = $220

Therefore, the final answer to the student's question would be $220, which represents the bank's capital as of the date specified. It is calculated by adding the increase in assets and subtracting the increase in liabilities.