Question

A person has the following financial information:

Assets (Fair Market Value) = $300
Assets (Book Value) = $200
Liabilities (Fair Market Value) = $100
Liabilities (Book Value) = $150
Tax Rate = 20%
Required:
Calculate the person's net worth (Fair Market Value).
Calculate the person's net worth (Book Value).
Calculate the person's unrealized gain (loss) on assets.
Calculate the person's taxable gain (loss) on assets.

Answer 1

The T-account balance sheet for the bank lists reserves, government bonds, and loans under assets, and deposits under liabilities. The bank's net worth is calculated by subtracting the total liabilities from the total assets, resulting in a net worth of $220.

Step-by-step explanation:

To set up a T-account balance sheet and calculate the bank's net worth, we will list assets on the left side and liabilities on the right side. The net worth is calculated by subtracting the total liabilities from the total assets.

Bank's T-Account Balance Sheet

Assets
Reserves: $50
Government Bonds: $70
Loans: $500
Total Assets: $620

Liabilities
Deposits: $400
Total Liabilities: $400

Now, to calculate the bank's net worth, we subtract the total liabilities from the total assets:

Net Worth = Total Assets - Total Liabilities
Net Worth = $620 - $400
Net Worth = $220

Therefore, the bank's net worth is $220.