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Alenkinab [10]
3 years ago
6

The manager of the bank where you work tells you that your bank has $6 million in excess reserves. she also tells you that the b

ank has $400 million in deposits and $362 million dollars in loans
Business
1 answer:
Yuki888 [10]3 years ago
4 0
That's not a question. but add 400 dep. and 6 res. thats 406 million. Minus 362 million that is a positive amount of 44 million total res. + dep. But banks don't work like that. Most banks have at LEAST 100x more money loaned out than what is in reserves or deposits combined
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If the government takes this approach, consumer surplus would increase.

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Mills Corporation acquired as a long-term investment $200 million of 7% bonds, dated July 1, on July 1, 2018. Company management
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Answer:

investment on bonds   200 millions

premium on bonds         40 millions

                        cash                            240 millions

to record the purchase of bonds

cash                             7 millions

      interest revenue             6 millions

      premium on bonds         1 million

interest proceeds of december 31th

Balance sheet:

bonds      200

premium    39

net            239

cash                                             250 millions

              investment on bonds                         200 millions

              premium on bonds                               39 millions

              gain on sale of invesment                    11   millions

to record the sale of bonds

                       

Explanation:

<u>recording the bonds:</u>

acquisition             240

bonds face value (200)

premium                  40

It is a premium, as the bonds where purchased at higher price than face value

<u>Interest at December 31th</u>

To calculate the interest, we will calcualte the interest per payment:

7% annual coupon rate /2 payment per year = 3.5% semi-annual rate

5% market rate /2 payment per year = 2.5% semi-annual market rate

cash proceeds: 200 x 3.5% = 7

interest revenue:

carrying value x market rate

240 x 2.5% = 6

amortization 7 - 6 = 1

<u>Value in the balance sheet:</u>

the net value of the bond will be the face value plus the carrying value of the premium

<u>Sale of the bonds:</u>

selling price                           250

carrying value of the bonds (239)

gain on sale of bonds              1 1

It is a gain, as the bonds are being sold at a higher price than his carrying value.

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3 years ago
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