Know Your Business Mid-Term Exam Make-up uestion 14 of 20 hen a new bank with eq

Question

Know Your Business Mid-Term Exam Make-up uestion 14 of 20 hen a new bank with equity of 1 million dollars opened in the small town of Geckotopia, all their constituents were excited that they finally had a place that could keep their money. The bank purchased a building for 1 million dollars. The citizens immediately deposited $100 million into the bank. Their cash reserve is 10% of their deposits and the rest the bank loaned out. Throughout the year, the new bank earns 10 million dollars in Interest Income and pays out Interest Expense of 5 million dollars. Salary and upkeep for the year totaled 1 million dollars. The upkeep maintains the initial value of the building. Taxes to the state and federal government total 1 million dollars. The bank was overwhelmed by the amount of deposits at beginning of the year, and did not accept any new ones throughout the year. Using the information in the above paragraphs, create th its correct spot on the balance sheet. (click on left item then click on corresponding amount) e ending balance sheet. Match each line item to Total Amount Item on Cash $4 Million Deposits Equity $13 Million ion Building Loans to others

Explanation / Answer

Cash:

Deposits= 100 as given, as there is no new deposits

Equity= Opening balance plus net income= 1+3= 4

Buildings= 1, as there is no change during the year

Loan to others= 90% of deposits(10% is reserve)= 100*90%= 90

net income:

Cash Equity issue proceeds 1 Less; Building purchased -1 Deposits received 100 Less: Loans to others -90 Net income 3 Ending 13

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