Question

The following are three receivables transactions. Indicate whether these receivables are reported as accounts receivable, notes receivable, or other receivables on a balance sheet.

(a) Sold merchandise on account for $64,000 to a customer. select a type of receivables
(b) Received a promissory note of $57,000 for services performed. select a type of receivables
(c) Advanced $10,000 to an employee. select a type of receivables
At December 31, 2021, Monty Company had a credit balance of $19,700 in Allowance for Doubtful Accounts. During 2022, Monty wrote off accounts totaling $11,800. One of those accounts of $2,100 was later collected. At December 31, 2022, an aging schedule indicated that the balance in Allowance for Doubtful Accounts should be $25,200.
Prepare journal entries to record the 2022 transactions of Monty Company.

Answer 1

The Fed's open market purchase increases Acme Bank's reserves, enabling new loans, while an open market sale would lead Acme Bank to reduce loans if it must maintain required reserves.

Step-by-step explanation:

Balance Sheet Adjustments for Acme Bank After Fed Transactions

When analyzing balance sheet changes for a bank after the Federal Reserve conducts financial operations such as open market purchases or sales, it's important to understand how these actions impact the bank's reserves and lending capabilities. Let's consider Acme Bank's situation in two separate scenarios:

Scenario 1: Open Market Purchase

The Fed conducts an open market purchase by buying $10 million in Treasury bonds from Acme Bank. Initially, Acme Bank has $30 million in reserves, $50 million in bonds, and $50 million in loans noted on the asset side, and $100 million in deposits with $30 million in equity on the liabilities and equity side. After selling the bonds to the Fed, Acme Bank's reserves increase by $10 million. The bank can use these additional reserves to extend new loans, thereby impacting Acme Bank's ability to generate income through interest on these loans.

Scenario 2: Open Market Sale

In contrast, if the Fed conducts an open market sale, Acme Bank purchasing $10 million in Treasury bonds would reduce its reserves by that amount. If Acme Bank's reserve requirement is 10% of deposits, and it needs to restore required reserves, it would possibly have to decrease its loans unless it has excess reserves to cover the purchase.