An introduction to T-accounts Suppose that a firm named Erin\'s Consulting owns

Question

An introduction to T-accounts Suppose that a firm named Erin's Consulting owns a building worth $750,000 and furniture worth $425,000. To open her business, Erin borrowed $950,000 from Pacific Federal Bank. She has not paid back any of the loan; therefore, the full amount of the loan is still outstanding. Complete the following T-account for Erin's Consulting. T-Account for Erin's Consulting Assets Liabilities Building $750,000 Reserves Furniture Loan from bank Now consider a T-account for Pacific Federal Bank. Suppose that the bank has $900,000 in reserves, $6,800,000 in loans, and $7,300,000 in deposits outstanding. Use this information to complete the empty boxes in the following T-account for Pacific Federal Bank. One entry has been completed for you. T-Account for Pacific Federal Bank Assets Liabilities Loans $6,800,000 What is the reserve ratio of Pacific Federal Bank? 12.3% 93.2% 811.1% 13.2%

Explanation / Answer

(1)

(2)

(3) Reserve ratio = Reserve / Deposit = $900,000 / $7,300,000 = 0.123 = 12.3%

Assets $ Liabilities $ Building 750,000 Loans outstanding 950,000 Furniture 425,000

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