Question

McDermott Company's bank statement for September 30 showed an ending cash balance of 1,350. The company's Cash account in its general ledger showed a995 debit balance. The following information was also available as of September 30.

⋅ The bank deducted 125 for an NSF check from a customer deposited on September 15.
⋅ The September 30 cash receipts,1,250, were placed in the bank's night depository after banking hours on that date and this amount did not appear on the September 30 bank statement.
⋅ A 15 debit memorandum for checks printed by the bank was included with the canceled checks.
⋅ Outstanding checks amounted to1,145.
⋅ Included with the bank statement was a credit memo in the amount of 875 for an EFT in payment of a customer's account.
⋅ Included with the canceled checks was a check for275, drawn on the account of another company.

UPDATE TO COMPANY'S Books

Answer 1

Depositing a loan into a bank checking account increases the money supply. Hank's Auto Supply's loan increases First National's reserves and deposits, while Jack's loan raise the M1 money supply at Second National. Banks must hold a portion of deposits as reserves but can lend out the rest.

Step-by-step explanation:

When Hank's Auto Supply receives a loan from Singleton Bank and deposits it into its checking account at First National, the money supply expands in two ways. Firstly, Singleton Bank makes an entry on its balance sheet for the loan, which is considered an asset. Second, when Hank deposits the cashier's check into First National, the bank's deposits and reserves increase by the loan amount. However, First National must keep 10% as required reserves but can lend out the remaining 90%.

If Jack deposits a loan into his checking account at Second National, the money supply increases further. This is due to the fact that deposits in a bank are counted as part of the M1 money supply, which includes highly liquid forms of money such as cash and checking deposits. The act of depositing loans into these accounts increases the total amount of money available for use in the economy, leading to an increase in the money supply.