4. First National Bank of Elderidge borrowed $550,000 from the Federal

QUESTION

4. First National Bank of Elderidge borrowed $550,000 from the Federal Reserve Bank of St. Louis last Friday. The bank received short-term adjustment credit for three days and plans to repay its loan at the close of business Monday. Show the proper accounting (T-account) entries for this transaction
T-account entries for the friday transactin: As the National bank borrowed $550,000 from the Fedral reserve bank its reserves rise to $550,000 and simaltaneously its notes payable liabiities will increase to the same amount. The entry for the loan taken is as follows; Cash Debit Credit 550,000 Notes payable Debit Credit 550,000 Entries for the loan repayment on monday: As the loan is repaid the cash balance will decrease as well as the notes payable will decrease, for this the entry will be as follows; Cash

ebit Credit 550,000 Notes payable Debit Credit 550,000 The reserves of the National bank rose to $550,000 when the bank made the loan from the Federal reserve bank. Reserve requirements is the essential factor to be considered here. Since the bank made loan for meeting the short term obligations, it should consider the reserve requirements.

ANSWER:

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