You Receive a Bonus Check from Your Employer for $10,000,and

question 5

Multiple Choice

You receive a bonus check from your employer for $10,000,and you deposit this in a bank that faces a 20% reserve ratio.What is the consequence if the bank then deposits your check at the Federal Reserve?

• A) Excess reserves increase by $10,000.
• B) Required reserves increase by $2,000.
• C) Reserves are not affected.
• D) Excess reserves increase by $10,000 and required reserves increase by $2,000.
• E) Excess reserves increase by $8,000 and required reserves increase by $2,000.

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Definitions:

Long-Term Liabilities

Liabilities that are not due to be settled within the next 12 months.

Equity Method

A method of accounting in which an investor records its investment in another entity at original cost and subsequently adjusts this amount for its share of the profits or losses of the investee.

Deferred Losses

Losses that have been recognized in the financial statements but are not yet realized through actual transaction, to be recognized in future periods.

Net Operating Losses

Financial losses that occur when a company's allowable deductions exceed its taxable income, which can be carried over to reduce future taxable income.