Final answer:
A balance sheet is a financial statement that shows a company's assets, liabilities, and equity. Alex's deposit and Sue's deposit increased the assets and liabilities of Bank ABC. Dave's loan increases the liabilities and decreases the assets of Bank ABC.
Step-by-step explanation:
A balance sheet is a financial statement that shows a company's assets, liabilities, and equity at a specific point in time. Let's set up a T-account balance sheet for Bank ABC using the given information:
Assets: Reserves $50 + Government bonds $70 + Loans $500 = $620
Liabilities: Deposits $400
Equity (also known as Net Worth): Assets $620 - Liabilities $400 = $220
Now let's answer each part of the question:
A. When Alex deposits $1,000 into his checking account, the liabilities (deposits) increase by $1,000, and the assets (reserves) increase by $150 (15% of $1,000).
B. When Sue deposits $500 into her savings account, the liabilities (deposits) increase by $500, and the assets (reserves) increase by $75 (15% of $500).
C. After Alex and Sue's deposits, the balance sheet will be:
Assets: Reserves $275 + Government bonds $70 + Loans $500 = $845
Liabilities: Deposits $1,900
Equity (Net Worth): Assets $845 - Liabilities $1,900 = -$1,055
D. When Dave borrows $1,000, the liabilities (loans) increase by $1,000, and the assets (reserves) decrease by $150 (15% of $1,000).
After Dave's loan, the final balance sheet will be:
Assets: Reserves $125 + Government bonds $70 + Loans $1,500 = $1,695
Liabilities: Deposits $1,900 + Loans $1,000 = $2,900
Equity (Net Worth): Assets $1,695 - Liabilities $2,900 = -$1,205