Question

Which of the following accounts would be included in the plant assets category of the classified balance sheet?

1) Land held for investment
2) Accumulated Depreciation
3) Office Supplies
4) Mortgage Payable

Answer 1

The assets on a bank's balance sheet may include monetary items that are not physical cash, such as reserves at the Federal Reserve, loans to customers, and bonds. The price paid for loans in the secondary market varies based on borrower reliability and changes in economy-wide interest rates. So the correct answer is option 1.

Step-by-step explanation:

The money listed under assets on a bank balance sheet may not actually be in the bank because a bank's assets include not only the physical cash held in their vaults but also monies that the bank holds at the Federal Reserve Bank (called "reserves"), loans made to customers, and bonds, such as those issued by the U.S. government. These assets represent future streams of income rather than liquid cash on hand.

While considering the purchase of loans in the secondary market, various factors can influence the price one is willing to pay:

• If a borrower has been late on loan payments, the loan is riskier, and therefore you might pay less for it.
• If interest rates in the overall economy have risen since the loan was made, the loan's lower fixed interest rate is less attractive compared to current rates, and you would pay less.
• A firm that has declared high profits may be seen as less risky, making their loan more valuable, leading you to pay more.
• If economy-wide interest rates have fallen since the bank made the loan, the older loan's higher interest rate is more appealing, and you'd be willing to pay more for it.