Question

The entry to record the acquisition on Eton's books includes a credit to additional paid-in capital for:

1) 80,000,000
2) 30,000,000
3) 2,000,000
4) 3,500,000

Answer 1

The Fed's purchase of $10 million in Treasury bonds from Acme Bank would result in an increase in reserves and allow Acme to issue new loans for the same amount, changing the bank's balance sheet accordingly.

Step-by-step explanation:

The question relates to the changes in Acme Bank's balance sheet following an open market operation by the Federal Reserve. When the Fed purchases $10 million in Treasury bonds from Acme Bank, Acme's reserves will increase by $10 million, as the Fed credits their reserve account. Consequently, Acme Bank can use this increased liquidity to issue new loans. The new balance sheet would show an increase in reserves by $10 million and a corresponding increase in loans by $10 million, assuming Acme decides to lend out the entire amount of the bond sale proceeds. There are no changes to Acme Bank's equity or deposits as a direct result of this transaction.