A Customer of a Bank Needs Additional Currency and Cashes

question 18

Multiple Choice

A customer of a bank needs additional currency and cashes a check for $10,000. The reserve requirement is 20%. The bank has no excess reserves. It must

• A) refuse the check.
• B) get an additional $8,000 of reserves.
• C) get an additional $2,000 of reserves.
• D) transfer $10,000 of reserves to the Fed.

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Definitions:

Amortization Expense

The systematic allocation of the cost of an intangible asset over its useful life.

Fair Value

The proceeds from liquidating an asset or the fees involved in transferring a liability during a regular transaction with engaged market members on the bookkeeping date.

Undervalued Patent

A patent that is recognized at a market value lower than its potential earning power or its replacement cost.

Partial Equity Method

A method of accounting for an investment, where the investor recognizes its share of the investee's profits but not its losses to the extent of the investment's carrying amount.