Broncs Bank has the following liabilities and equity categories: Deposits: 12 mi

Question

Broncs Bank has the following liabilities and equity categories:

Deposits:                                             12 million

Other liabilities:                                  4 million

Owners’ Capital                                  ?

Total Liabilities and Capital               ?

What would be the bank’s total liabilities and capital if owners’ capital were 75% the size of Other Liabilities?

If Total Liabilities and Capital were 18 million what would be the size of Total Deposits?

If Total Liabilities and Capital were 23 million and 2 million of Cash were withdrawn from Deposits, how would that change Total Owners’ Capital?

Explanation / Answer

Owner's capital = 75% of other liabilities

= 0.75 * 4 million

= 3 million

Total liability = Deposits + Other liabilites + Owner's capital

= 12 + 4 + 3

= 19 million

If Total Liabilities and Capital were 18 million

Deposits = Total Liabilities and Capital - Other liabilities - Owners’ Capital

= 18 - 4 - 3

= 11 milion

If Total Liabilities and Capital were 23 million and 2 million of Cash were withdrawn from Deposits

Deposits reduce from 12 to 10 million and Total Liabilities and Capital reduce to 21 million

Owners' capital = Total Liabilities and Capital - Deposits - Other liabilities

= 21 - 10 - 4

= 7 million

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