The balance sheet for the newly formed Last National Bank is

The balance sheet for the newly formed Last National Bank is shown below. The reserves listed on the balance sheet are reserves on deposit at the Federal Reserve. The cash is vauilt cash held at the bank Last National Bank Balance Sheot 1 Liabilities and net worth 13,000 Checkable $ 98,000 Cash Reserves Property deposits Stock shares S 5 92,000 Stock shares 300,000 S 293.000 Instructions: Enter your answers as whole numbers. a. Suppose a depositor at the bank writes a check for $28,000 to a contractor to pay for some remodeling work done on her home The contractor deposits the check in his bank (which is a different bank). What will Last National Bank\'s balance sheet look uke after the check clears? Record the values in the table below Last National Bank Balance Sheet 2 Liabilities and net worth Assets Cash Reserves Proparty deposts Stock shares

Solution

A. AFTER THE CLEARANCE OF THE CHECK THE BALANCE SHEET WILL SHOW A REDUCTION OF $28,000 IN CHECKABLE DEPOSITS ON THE LIABILITIES SIDE AND $28000 REDUCTION IN RESERVES ON ASSETS SIDE. THE NEW BALANCE SHEET WILL LOOK LIKE THIS

LIABILITIES = CHECKABLE DEPOSITS $70000 + STOCK SHARES $300,000 = $ 370,000

ASSETS = CASH $13000 + RESERVES $64000 + PROPERTY $293000 = $ 370,000

b. SINCE THE RESERVE REQUIREMENTS ARE OF 15% OF DEPOSITS, SO AFTER THE CHECK AMOUNT OF CHECKABLE DEPOSITS IS $70,000. BASED ON THIS AMOUNT THE REQUIRED RESERVES WILL BE

15% OF $70,000 = $10,500.

BALANCE OF RESERVES AFTER CHECK IS $64,000.

SO EXCESS RESERVES WILL BE = 64000 - 10500 = $ 53,500