If a Check Is Written for the Full Amount of a Derivative

question 48

Multiple Choice

If a check is written for the full amount of a derivative deposit created by a bank loan and then is sent to a bank in another city for deposit:

• A)the lending bank would lose all of its excess reserves
• B)the lending bank would still have reserves to lend
• C)the full amount would be added to the receiving bank's excess reserves
• D)both a and c

---

Definitions:

Interest Expense

The cost incurred by an entity for borrowed funds, which may include the cost of bonds, loans, convertible debt, and lines of credit.

Interest Payable

The amount of interest expense that has been incurred during a period but not yet paid to creditors.

Adjusting Journal Entry

A type of entry made in the books of accounts to correct or update the financial statements to more accurately reflect the financial position of the business.

Prepaid Insurance Expense

An accounting term referring to payments made for insurance coverage before the coverage period starts, recorded as an asset on the balance sheet.