The balance sheet for the newly formed Last National Bank is shown below. The re

Question

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 vault cash held at the bank. Last National Bank Balance Sheet 1 Liabilities and net worth Cash Reserves Property S 19.000 Checkable $ 98,000 Stock shares deposits S 115,000 280,000 S 278,000 Instructions: Enter your answers as whole numbers. a. Suppose a depositor at the bank writes a check for $25,000 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 like after the check clears? Record the values in the table below. Last National Bank Balance Sheet 2 Assets Cash Reserves Property Liabilities and net worth deposts Stock shares

Explanation / Answer

The change will only be reflected in checkable deposits. These are funds held by a bank to facilitate its customers to access their accounts by issuing a check/cheque or draft. It is highly liquid in nature and hence can be easily tranferred from one entity to another. In this case, when a person with a check of Last National Bank approaches any other bank for clearance. The checkable deposits component of Last National Bank's balance sheet will get deducted by that amount($25,000).

Therefore,under assets:

cash=$19,000

Reserves=$98,000

Property=$278,000

Under liabilities and net worth:

Checkable deposits=$(115,000-25,000)=$90,000

Stock shares=$280,000

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