A bank has the following items in its books: deposits = 50, reserves = 5, borrowings...

A bank has the following items in its books: deposits = 50, reserves = 5, borrowings = 10, loans = 50, securities = 15. (a) What is the bank’s capital? (b) Construct the balance sheet. (c) Suppose 50% of the loans goes bad and have to written off from books (their value falls to 0). Write the new balance sheet. (d) Explain the situation.

Expert Solution

SOLUTION:-

(A). The balance sheet of a bank is the financial report that indicates the balance between a bank’s assets and its liabilities plus capital. The assets of a bank are the items of value that the bank owns, including loans. The liabilities of a bank are the financial obligation that the bank has to other people.

The bank’s balance sheet is given as

(B). The write off is decreasing the loan and asset of a bank and recorded as an expense of the bank in liability side. After the write off the balance sheet is given as

Rahul Sunny answered 2 years ago

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