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 three 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

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 1,500 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 $80 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.