Final answer:
Singleton Bank's loan to Hank's Auto Supply is recorded as an asset, affecting both Singleton's and First National's balance sheets. When setting up a T-account balance sheet for a bank with given assets and liabilities, the net worth is calculated by subtracting liabilities from assets.
Step-by-step explanation:
Understanding a Bank's Balance Sheet When a bank, such as Singleton Bank, lends money to a business like Hank's Auto Supply, it records the loan as an asset on its balance sheet. This is because the loan will generate interest income for the bank. For instance, when Singleton Bank lends $9 million to Hank's Auto Supply, it reflects this in its balance sheet with an increase in assets—both the loan to Hank's Auto Supply and any reserves associated with the deposit Hank makes with another bank, such as First National. First National will experience an increase in both deposits and reserves by the amount of the loan received by Hank, in this case, $9 million. Due to reserve requirements, only a portion of the received deposits can be used for further lending.
For example, if the reserve requirement is 10%, then First National must hold $900,000 as required reserves but can lend out the remaining $8.1 million.Setting up a T-account balance sheet for a bank that has deposits of $400, reserves of $50, government bonds worth $70, and loans of $500, would involve listing these values under assets or liabilities and calculating the bank's net worth.