Question

Lanni Products is a start-up computer software development firm. It currently owns computer equipment worth $30,000 and has cash on hand of $20,000 contributed by Lanni's owners. For each of the following transactions, identify the real and/or financial assets that trade hands. Are any financial assets created or destroyed in the transaction? a. Lanni takes out a bank loan. It receives $50,000 in cash and signs a note promising to pay back the loan over 3 years. b. Lanni uses the cash from the bank plus $20,000 of its own funds to finance the development of new financial planning software. c. Lanni sells the software product to Microsoft, which will market it to the public under the Microsoft name. Lanni accepts payment in the form of 1,500 shares of Microsoft stock. d. Lanni sells the shares of stock for $80 per share and uses part of the proceeds to pay off the bank loan.

Answer 1

a. Cash received and promissory note to pay back loan are financial asset

b.Financial asset ( cash ) is transferred in exchange of Real asset ( software) . No financial Asset is created

c.Real asset ( software ) is sold in exchange of Microsoft shares which leads to creation of a financial asset.

d.One financial asset is exchanged (1,550 shares of stock) for another ($120,000). A financial asset ($50,000 cash) is given to the bank and the bank reduces the financial asset (promissory note). The loan is destroyed in the transaction, since it is retired when paid off and no longer exists