Answer:
a. Lanni takes out a bank loan. It receives $50,000 in cash and signs a note promising to pay back the loan over three years.
- FINANCIAL ASSET CREATED: when the loan was received, a financial asset was created. Money is exchanged for a promissory note.
b. Lanni uses the cash from the bank plus $20,000 of its own funds to finance the development of new financial planning software.
- REAL ASSET CREATED: when the software was developed, a real asset was created. Money was invested in developing the 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 2,500 shares of Microsoft stock.
- FINANCIAL ASSET CREATED: when the software was traded, a financial asset was created. A real asset was traded in exchange for financial assets.
d. Lanni sells the shares of stock for $50 per share and uses part of the proceeds to pay off the bank loan.
- FINANCIAL ASSET DESTROYED: when the loan is paid back, the financial asset (loan) ceases to exist. When the money is paid back to the bank, the loan and the promissory note cease to exist.
a-1. Prepare its balance sheet just after it gets the bank loan.
Lanni Products
Balance Sheet
After it got the bank loan
Assets:
Cash $70,000
Computer equipment $30,000
Total assets $100,000
Liabilities:
Notes payable $50,000
Total liabilities $50,000
Shareholders's equity
:
Paid in capital $50,000
Total shareholders's equity $50,000
Total liabilities and shareholders' equity $100,000
a-2. What is the ratio of real assets to total assets?
ratio of real assets to total assets = computer equipment / total assets = $30,000 / $100,000 = 30%
b-1. Prepare the balance sheet after Lanni spends the $70,000 to develop its software product.
Lanni Products
Balance Sheet
After it developed the software product
Assets:
Software $70,000
Computer equipment $30,000
Total assets $100,000
Liabilities:
Notes payable $50,000
Total liabilities $50,000
Shareholders's equity
:
Paid in capital $50,000
Total shareholders's equity $50,000
Total liabilities and shareholders' equity $100,000
b-2. What is the ratio of real assets to total assets?
ratio of real assets to total assets = (software + computer equipment) / total assets = $100,000 / $100,000 = 100%
c-1. Prepare the balance sheet after Lanni accepts the payment of shares from Microsoft.
Lanni Products
Balance Sheet
After it sold the software product to Microsoft
Assets:
Shares of Microsoft $125,000
Computer equipment $30,000
Total assets $155,000
Liabilities:
Notes payable $50,000
Total liabilities $50,000
Shareholders's equity
Paid in capital $50,000
Retained earnings $55,000
Total shareholders's equity $105,000
Total liabilities and shareholders' equity $155,000
c-2. What is the ratio of real assets to total assets?
ratio of real assets to total assets = computer equipment / total assets = $30,000 / $155,000 = 19.35%
