Suppose a new customer opens a checking account and a savings account in a commercial bank,placing $200,000 in each.Later,the bank loans the customer $200,000.For this bank,
A)assets increased by $200,000 and liabilities increased by $100,000.
B)assets increased by $100,000 because the loan is an asset and liabilities increased by $100,000 because the checking deposit is a liability.The savings deposit is neither an asset nor a liability.
C)liabilities increased by $200,000 since the checking account and the savings account are liabilities while it generated no new assets.
D)assets increased by $200,000 because the loan is an asset and liabilities increased by $400,000 because both the checking deposit and the savings deposit are liabilities to the bank.

Question

Quizplus · Accepted Answer

When the customer opens a checking and a savings account with $200,000 each, the bank's liabilities increase by $400,000 because these deposits are obligations the bank owes to the customer. When the bank loans $200,000 to the customer, its assets increase by $200,000 because the loan represents money the bank expects to be repaid, thus making the correct answer D.

Suppose a New Customer Opens a Checking Account and a Savings