Question

Which of the following entries would appear on the liabilities side of the Bank of Canada's balance sheet?

A) Deposit money held in accounts at Canada's commercial banks
B) Government of Canada securities
C) Foreign currency reserves
D) Paper notes in circulation
E) Canadian corporate securities

Answer 1

The liabilities side of the Bank of Canada's balance sheet includes paper notes in circulation. For the provided bank example, a T-account balance sheet shows assets of $620 and liabilities of $400, resulting in a net worth of $220.

Step-by-step explanation:

The student asked which of the following entries would appear on the liabilities side of the Bank of Canada's balance sheet. The correct answer is D) Paper notes in circulation. This represents the banknotes that the Bank of Canada has issued into the economy which are obligations it must redeem upon request. The liabilities of a bank are the elements that represent what the bank owes, and paper notes in circulation are a direct obligation of the Bank of Canada.

Setting up a T-account balance sheet for the given bank, we have:

• Assets:

1. Reserves: $50
2. Government bonds: $70
3. Loans: $500

• Liabilities:

1. Deposits: $400

The net worth (also known as the bank's capital) is calculated by subtracting liabilities from assets. So, the net worth is $50 (reserves) + $70 (government bonds) + $500 (loans) - $400 (deposits) = $220.