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.

Question

Fletcher Glover

Business

28 April, 20:17

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.

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Answers (1)

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Paco · Answer 1

Lanni takes a financial liability. The promissory note is a financial assets (the bank can sale it in the secondary market)

Then, Lanni trades the real asset (the software) for financial assets (Microsoft shares) created by Microsoft

Finally, Lanni destroys the financial assets created with the bank when it pays the entire of the bank loan.

Question:

When are financial assets created or destroyed?

Explanation:

A Financial asset represent a debt or equity security. This are promise of pay (promissory notes) or right of ownership (stocks) Financial assets are traded in secondary markets.