Final answer:
A company with a current ratio of 3.0 has $3.00 in current assets for every dollar of current liabilities due within the next 12 months. To set up a T-account balance sheet for a bank, list its assets and liabilities and then calculate net worth as the difference between total assets and total liabilities. The example provided shows a bank with a net worth of $220.
Step-by-step explanation:
If the current ratio of a company is 3.0, it means that the company has $3.00 in current assets for every dollar that it owes in the next 12 months. The current ratio is a financial metric used to determine the company's ability to pay off its short-term liabilities with its short-term assets. A company with a current ratio of 3.0 is in a strong liquidity position.
In order to set up a T-account balance sheet for a bank, we would list the bank's assets and liabilities and calculate the bank's net worth. The assets side would include reserves, government bonds, and loans, while the liabilities side would include deposits and the bank's net worth. To calculate the net worth, we would subtract the total liabilities from the total assets.
For example, if a bank has deposits of $400, reserves of $50, government bonds worth $70, and has made loans of $500, the T-account balance sheet would look like this:
- Assets:
- Reserves: $50
- Government Bonds: $70
- Loans: $500
- Liabilities:
- Deposits: $400
- The bank's net worth would be calculated as follows:
- Total Assets = $50 (Reserves) + $70 (Bonds) + $500 (Loans) = $620
- Total Liabilities = $400 (Deposits)
- Net Worth = Total Assets - Total Liabilities = $620 - $400 = $220
- Thus, the bank's net worth would be $220.