Question

Artnership will acquire all of yankee's business and assume its debts. the entry to record the initial capital contribution on the books of the partnership would include:

a. a credit to cash for $10,000
b. a debit to inventory for $30,000
c. a credit to equipment for $40,000
d. a debit to equipment for $50,000

Answer 1

A bank's balance sheet will reflect an increase in reserves and a corresponding increase in assets when the Federal Reserve makes an open market purchase and the bank extends new loans. The bank's equity represents the net worth, calculated by subtracting total liabilities from total assets.

Step-by-step explanation:

The question pertains to how a bank's balance sheet changes following a Federal Reserve open market purchase and subsequent transactions, such as new loans made by the bank. When the Federal Reserve buys Treasury bonds from a bank, the bank's reserves increase as it receives cash in exchange for the bonds. This increase in reserves allows the bank to create new loans, which are considered assets because they generate interest income. Additionally, if a bank lends money, as seen in the case with Singleton Bank and Hank's Auto Supply, the loan amount appears on the bank's balance sheet as an asset, and when the loan proceeds are deposited at another bank (First National), that bank's deposits and reserves increase. The bank will hold a portion of the deposits in reserves according to the required reserve ratio, which is often set by the central bank, and is free to lend out the rest. The net worth or equity of a bank can be derived by subtracting the total liabilities from the total assets.