BUS 321 Chapter 1

b. What is that ratio for nonfinancial firms? (Table 1.4) (Round your answer to 4 decimal places.) Total real assets: $22,535 Total assets: $41,759

$22,535/$41,759 = 0.5396

Suppose that in a wave of pessimism, housing prices fall by 10% across the entire economy. a. Has the stock of real assets of the economy changed?

No

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 The bank loan is a ________________ for Lanni. Lanni's $50,000 IOU is the banks _________________. The cash Lanni receives is a ___________________. The new financial asset _____________ is Lanni's promissory note held by the bank.

financial liability financial asset financial asset created

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 2,000 shares of Microsoft stock. Lanni sells the software, which is a _____________, to Microsoft. In exchange Lanni receives a ___________________, 2,000 shares of Microsoft stock. A new financial asset is ______________ if Microsoft issues new shares.

real asset financial asset created

a. What is the ratio of real assets to total assets for commercial banks? (Round your answer to 4 decimal places.) Total real assets: 125.2 Total assets: 16,780.2

125.2/16,780.2 = 0.0075

Suppose that in a wave of pessimism, housing prices fall by 10% across the entire economy. b. Are individuals less wealthy?

Yes

a. Toyota takes out a bank loan to finance the construction of a new factory. Toyata _____________ a _________ asset--factory. The loan is a _____________ asset that is __________ in the transaction.

creates; real financial; created

d. Lanni sells the shares of stock for $70 per share and uses part of the proceeds to pay off the bank loan. In selling 2,000 shares of stock for $140,000, Lanni is exchanging one ___________________ for another. In paying off the IOU with $50,000, Lanni is exchanging __________________. The loan is _______________ in the transaction, since it is retired when paid.

financial asset financial assets destroyed

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. - 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. - Lanni uses the cash from the bank plus $20,000 of its own funds to finance the development of new financial planning software. - 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 2,000 shares of Microsoft stock. - Lanni sells the shares of stock for $70 per share and uses part of the proceeds to pay off the bank loan. b-2. What is the ratio of real assets to total assets? (Round your answer to 1 decimal place.)

$100,000/$100,000 = 1.0

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. - 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. - Lanni uses the cash from the bank plus $20,000 of its own funds to finance the development of new financial planning software. - 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 2,000 shares of Microsoft stock. - Lanni sells the shares of stock for $70 per share and uses part of the proceeds to pay off the bank loan. c-1. Prepare the balance sheet after Lanni accepts the payment of shares from Microsoft.

Assets: Microsoft Shares 140,000 ($70 * 2,000 shares) Computers 30,000 Total 170,000 Liabilities & Shareholders' Equity: Bank Loan 50,000 Shareholders' Equity 120,000 Total 170,000

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. - 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. - Lanni uses the cash from the bank plus $20,000 of its own funds to finance the development of new financial planning software. - 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 2,000 shares of Microsoft stock. - Lanni sells the shares of stock for $70 per share and uses part of the proceeds to pay off the bank loan. a-2. What is the ratio of real assets to total assets? (Round your answer to 1 decimal place.)

$30,000/$100,000 = 0.3

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. - 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. - Lanni uses the cash from the bank plus $20,000 of its own funds to finance the development of new financial planning software. - 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 2,000 shares of Microsoft stock. - Lanni sells the shares of stock for $70 per share and uses part of the proceeds to pay off the bank loan. c-2. What is the ratio of real assets to total assets? (Round your answer to 2 decimal places.)

$30,000/$170,000 = 0.18

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. - 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. - Lanni uses the cash from the bank plus $20,000 of its own funds to finance the development of new financial planning software. - 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 2,000 shares of Microsoft stock. - Lanni sells the shares of stock for $70 per share and uses part of the proceeds to pay off the bank loan. b-1. Prepare the balance sheet after Lanni spends the $70,000 to develop its software product, with the software valued at cost.

Assets: Software Product 70,000 Computers 30,000 Total 100,000 Liabilities & Shareholders' Equity: Bank Loan 50,000 Shareholders'' Equity 50,000 Total 100,000

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. - 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. - Lanni uses the cash from the bank plus $20,000 of its own funds to finance the development of new financial planning software. - 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 2,000 shares of Microsoft stock. - Lanni sells the shares of stock for $70 per share and uses part of the proceeds to pay off the bank loan. a-1. Prepare its balance sheet just after it gets the bank loan.

Assets: Cash 70,000 Computers 30,000 Total 100,000 Liabilities & Shareholders' Equity Bank Loan 50,000 Shareholders' Equity 50,000 Total 100,000

b. Lanni uses the cash from the bank plus $20,000 of its own funds to finance the development of new financial planning software The cash paid by Lanni is the transfer of a _______________ to the software developer. In return, Lanni gets a ________________, the completed software.

financial asset real asset

b. Toyota pays off its loan. When the loan is repaid, the ____________ asset is ____________ but the __________ asset continues to exist.

financial; destroyed; real

c. Toyota uses $10 million of cash on hand to purchase additional inventory of spare auto parts. The cash is a ____________ asset that is traded in exchange for a _________ asset, inventory.

financial; real