Question

3. problems and applications q3 your uncle repays a $450 loan from tenth national bank (tnb) by writing a $450 check from his tnb checking account. assume these funds are the only loans and deposits available for your uncle and the bank. complete the following t-accounts for your uncle and tnb before your uncle repays the loan. your uncle assets liabilities checking account $450 loans $0 tenth national bank assets liabilities $ $ complete the following t-accounts for your uncle and tnb after your uncle repays the loan. your uncle assets liabilities $ $ tenth national bank assets liabilities $ $ true or false: your uncle's wealth has increased. true false

Answer 1

False, your uncle's wealth has not increased as per the calculations of the T-accounts.

The T-accounts, an informal account, use double-entry bookkeeping to maintain financial information. When all financial responsibilities have been met, a person's net worth is regarded as their wealth.

The borrower would have a fund of $450 in their checking account as an asset rather than a liability if the loan was not repaid.

The bank has a $450 asset in receivables, but a $450 liability in deposits in the checking account that must be paid.

It is possible to think of the T-account of the uncle and the TNB Bank as, respectively, T-account of the uncle,

Asset    Liabilities   

$450 (by checking account) $450 (loan)

T-account of the TNB bank,

Asset                      Liabilities            

$450 (loan)  $450 (deposits)

So, before paying the loan the wealth or net worth of the uncle can be estimated as,

Wealth = Assets - Liabilities

Wealth = Checking account - Loans

Wealth = $100 - $100

Wealth = $0

Now, after paying the loan through the a cheque against the checking account, the T-accounts of the uncle and the TNB Bank can be represented as,

T-account of the uncle,

Asset                   Liabilities     

$0 (Checking Account)       $0 (Loans)

T-account of the TNB bank,

Asset                      Liabilities           

$0 (Loans) $0 (Deposits)

So, after paying the loan the wealth or net worth of the uncle can be estimated as,

Wealth = Assets - Liabilities

Wealth = Checking account - Loans

Wealth = $0 - $0

Wealth = $0

Hence, there is no change in the wealth of the uncle before or after paying off the loan.

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