Final answer:
To create the T-account balance sheet for the bank, list reserves, government bonds, and loans as assets, and deposits as liabilities. Calculate net worth by subtracting liabilities from assets, resulting in a net worth of $220 for this bank.
Step-by-step explanation:
The question requires setting up a T-account balance sheet for a bank, and calculating the bank's net worth. A T-account balance sheet is a simple statement showing a bank's assets on one side and its liabilities on another side. To start, we will list the bank's assets which include reserves of $50, government bonds worth $70, and loans made totaling $500.
The liabilities side will include deposits totaling $400. To calculate the net worth, we subtract the total liabilities from the total assets. Here's how the T-account for this bank would look:
- Assets:
- Reserves: $50
- Government Bonds: $70
- Loans: $500
- Liabilities:
- Deposits: $400
The bank's net worth is calculated by subtracting the liabilities from the assets:
- Assets Total: $50 (reserves) + $70 (government bonds) + $500 (loans) = $620
- Liabilities Total: $400 (deposits)
- Net Worth: $620 (assets) - $400 (liabilities) = $220
Hence, the bank's net worth is $220.