Final answer:
A bank's balance sheet includes assets and liabilities, and its net worth can be calculated by subtracting the liabilities from the assets.
Step-by-step explanation:
A bank's balance sheet consists of assets and liabilities. Assets include reserves, loans, and investments, while liabilities include deposits and borrowed funds. To set up a T-account balance sheet for the bank in question, we can allocate the given amounts as follows:
- Assets:
- Reserves: $50
- Loans: $500
- Government bonds: $70 - Liabilities:
- Deposits: $400
To calculate net worth, we subtract the liabilities from the assets:
Net worth = (Reserves + Loans + Government bonds) - Deposits
Net worth = ($50 + $500 + $70) - $400
Net worth = $120 - $400
Net worth = -$280