A Banking System Has Total Deposits of $500 Billion and Total

question 89

Multiple Choice

A banking system has total deposits of $500 billion and total reserves of $140 billion. If the required reserve ratio is 20%, what is the deposit creation potential of the banking system?

• A) $280 billion
• B) $500 billion
• C) $140 billion
• D) $200 billion

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Definitions:

Uncollectible Receivables

Debts owed to a company that are considered impossible or highly unlikely to be paid, often written off as bad debt.

Bad Debt Expense

An estimated expense that represents the amount of receivables that a company does not expect to collect due to customers' inability to pay.

Allowance for Doubtful Accounts

An estimation of the amount of accounts receivable that may not be collectible, serving as a contra asset account.

Aging Method

An accounting technique used to estimate the amount of bad debt expense by classifying accounts receivable according to their age.