Question

If $51,000 cash is paid to buy land, the land is reported on the buyer’s balance sheet at $51,000. c. Jo Keene owns both Sailing Passions and Dockside Supplies. In preparing financial statements for Dockside Supplies, Keene makes sure that the expense transactions of Sailing Passions are kept separate from Dockside’s transactions and financial statements.

Answer 1

The question deals with how banks record loans on their balance sheets, the impact on reserves and deposits when a loan is deposited, and calculating a bank's net worth based on its balance sheet items like deposits, reserves, government bonds, and loans.

Step-by-step explanation:

The question at hand involves explaining how the accounting for transactions works within a banking context, particularly in terms of loans and balance sheets. When Singleton Bank lends $9 million to Hank's Auto Supply, it records this as an asset on its balance sheet because it expects to receive interest income from the loan. Hank's Auto Supply does not receive the loan in cash but as a cashier's check, which it then deposits into its checking account with First National.

As a result, First National's deposits and reserves increase by the amount of the loan. However, First National is required by law to hold 10% of the deposits as required reserves, although it is allowed to loan out the remaining balance. Furthermore, the student's question about setting up a T-account for a bank that has different assets and liabilities, including deposits, reserves, government bonds, and loans, requires understanding the bank's balance sheet to calculate the bank's net worth.