The following table shows Free Donut Bank's balance sheet. Free Donut Bank has a required reserve ratio of 20 percent and has $75 in excess reserves.

-Refer to the table above.How does Free Donut Bank's stockholders' equity change if the bank's long-term debt decreases by $50 and its long-term investments increase by $50?

Question

The following table shows Free Donut Bank's balance sheet. Free Donut Bank has a required reserve ratio of 20 percent and has $75 in excess reserves.
 
-Refer to the table above.How does Free Donut Bank's stockholders' equity change if the bank's long-term debt decreases by $50 and its long-term investments increase by $50?

Quizplus · Accepted Answer

Stockholders' equity is equal to assets minus liabilities. If long-term debt decreases by $50 and long-term investments increase by $50, then assets will remain the same. Liabilities will decrease by $50, so stockholders' equity will increase by $50.

The Following Table Shows Free Donut Bank's Balance Sheet