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? 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. Lanni uses the cash from the bank plus $20,000 of its own funds to finance the development of new financial planning software. page 25 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. Lanni sells the shares of stock for $50 per share and uses part of the proceeds to pay off the bank loan"

Answer 1

1).

Bank loan taken by Lanni is a financial liability. Lanni's Promissary note will be a financial asset for bank. Cash received by Lenni is a financial asset.

The financial asset created is Lanni's Promissory note.

2).

The cash transferred by Lanni for developing software is financial asset. The required software is the real asset.

No financial asset is created or destroyed.

3).

The software given to Microsoft by Lenni is a real asset. 2,500 shares received by Lenni is a financial asset.

If Microsoft gives the existing shares, no financial asset is created. If new shares are issued for this transfer, a new financial asset is created.

4).

Lenni exchanges stocks, which is a financial asset for cash, which is another financial asset. Then Lenni gives the cash of $50000, which is a financial asset to bank for clearing off the loan. The bank then reduces its Loan receivable, which is another financial asset.

Here, the loan is destroyed in this transaction.