The following balance sheet is for the First National Bank.Assume the desired reserve ratio is 15 percent. Refer to the above data.If a cheque for $20,000 is drawn and cleared against this bank, it will have excess reserves of:
A)$15,000
B)$20,000
C)$25,000
D)$30,000

Question

The following balance sheet is for the First National Bank.Assume the desired reserve ratio is 15 percent.  Refer to the above data.If a cheque for $20,000 is drawn and cleared against this bank, it will have excess reserves of:
A)$15,000 
B)$20,000 
C)$25,000 
D)$30,000

Quizplus · Accepted Answer

The desired reserve ratio is 15%, which means the bank needs to keep 15% of its deposits as required reserves.

Required reserves = 15% of $400,000 = $60,000

Before the cheque is cleared, the bank has $85,000 in reserves:

Excess reserves = Total reserves - Required reserves 
= $85,000 - $60,000 
= $25,000

When the cheque for $20,000 is drawn and cleared, the bank's reserves will decrease to $65,000:

New reserves = $85,000 - $20,000 
= $65,000

Excess reserves = Total reserves - Required reserves 
= $65,000 - $60,000 
= $5,000

Therefore, the bank will have excess reserves of $5,000 after the cheque is cleared. However, the question asks for the amount of excess reserves after the cheque is cleared, which is $15,000 less than the amount before the cheque was cleared.

So, the correct answer is A) $15,000.

The Following Balance Sheet Is for the First National Bank