Question

Zeina product is a start up shoe making firm. It currently owns equipment worth

$100,000 and has cash on hand of $20,000 contributed by Zeina’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. Zeina 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. Zeina uses the cash from the bank plus $20,000 of its own funds to finance the

purchase of leather.

c. Zeina sells shoes to Nike, which will market it to the public under the Nike name. Zeina

accepts payment in the form of 5,000 shares of Nike stock.

d. Zeina sells the shares of stock for $25 per share and uses part of the proceeds to

payoff the bank loan.

Answer 1

financial assets are those which can be converted to cash easily wheras real assets have their own intrinsic value.

a- the cash from the bank loan is a financial asset, financial asset created

b- leather is a real asset and the cash of $70,000 is a financial asset, financial asset destroyed

c- the 5000 shares are financial asset, the shoes sold are real assets sold to nike, financial asset created

d- the proceeds from the share is a financial asset that is created to payoff the bank loan,