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 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 Lannis 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
Reconsider Lanni Products from the previous problem.
a. Prepare its balance sheet just after it gets the bank loan. What is the ratio of real assets to total assets?
b. Prepare the balance sheet after Lanni spends the $70,000 to develop its software product. What is the ratio of real assets to total assets?
c. Prepare the balance sheet after Lanni accepts the payment of shares from Microsoft. What is the ratio of real assets to total assets?
Examine the balance sheet of commercial banks in Table 1.3.
a. What is the ratio of real assets to total assets?
b. What is the ratio of real assets to total assets for nonfinancial firms (Table 1.4)?
c. Why should this difference be expected?
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