Question

The following information comes from the banking activities of D \& N Appliance Co.: 1. The Bank account in the General Ledger shows a balance of $5,232.65 on November 30,20−. 2. The statement from the bank on November 30 shows a balance of $4,907.20. 3. Cheques received from customers on November 30 were recorded in the November journal, but the bookkeeper did not make it to the bank on that day. The total of these cheques is $535.75. 4. Cheque #155 issued for $34.75 was recorded incorrectly in the Cash Payments Journal as $43.75. This cheque was issued to pay the freight on incoming merchandise. 5. A cross-check of the Cash Payments Journal entries and the returned cancelled cheques reveals that these cheques in November are still outstanding: #140 for $182.50; #161 for $47.80; #170 for $200.25, and #172 for $95.25. Also, Cheque #178 for $580, which was certified two weeks ago, has not yet been cashed by the bank. 6. Among the cancelled cheques returned by the bank is Cheque #501 for $210 issued by N&D Appliance Repair Co. but charged in error to the account of D \& N Appliance Co. 7. A debit memo for $25 included with the November bank statement represents a charge for the annual safety deposit box rental. 8. The bank statement shows a regular bank service charge of $19.50. 9. A $70 cheque received from a customer, Jack Miller, was returned by the bank marked NSF and charged back to D \& N Appliance Co.'s account on November 29. From the above information, prepare a bank reconciliation statement showing the adjusted balance. Also, prepare the necessary General Journal entries to record those items from the reconciliation that have not yet been recorded on the books. D \& N Appliance Co. Bank Reconciliation November 30, 20xx General Journal

Answer 1

Singleton Bank issues a $9 million loan to Hank's Auto Supply, which is then deposited into a checking account at First National, increasing both deposits and reserves at the bank and illustrating the potential multiplication of the money supply through the banking system.

Step-by-step explanation:

The scenario described involves Singleton Bank lending $9 million to Hank's Auto Supply, which illustrates how the banking system can create money through the process of making loans that are deposited into demand deposit accounts. When Singleton Bank issues the loan to Hank's Auto Supply, it records the loan as an asset on its balance sheet, because the loan will generate interest income. However, instead of giving Hank's Auto Supply $9 million in cash, the bank provides a cashier's check, which is then deposited into Hank's account with First National. This deposit increases First National's deposits and reserves by $9 million. By reserve requirements, First National is required to hold 10% of the deposit as reserves but can loan out the rest. Consequently, if First National loans out the available funds, the money supply can increase even further, underscoring how loans and deposits can multiply the money supply within the economy.