Final answer:
Transaction D, purchasing a building with a note payable, increases both assets and liabilities for a company. A bank's balance sheet might not reflect cash present in the bank due to loans made from deposits. Loan valuations in the secondary market fluctuate with borrower reliability and economic interest rates, while the quantity of loans increases with a rise in demand or supply.
Step-by-step explanation:
When examining transactions that affect a company's balance sheet, certain activities can increase both assets and liabilities. The correct transaction from the provided options is D) Purchase of a building by issuing a note payable. This transaction will increase assets (in the form of property) and simultaneously increase liabilities due to the new obligation represented by the note payable.
The money listed under assets on a bank balance sheet may not be present in the bank because banks operate on a fractional reserve system, meaning they lend out the majority of the deposits they receive, keeping only a fraction in reserve for daily transactions. As a result, a considerable portion of the assets are represented by loans owed to the bank, not physical cash on hand.
When buying loans in the secondary market, considerations for valuing a loan include the borrower's creditworthiness and current economic conditions. A loan's value might decrease if:
- The borrower has been late on loan payments, indicating a higher risk of default.
- Interest rates have risen since the loan was made, making the loan less attractive compared to new loans with higher rates.
Conversely, a loan's value might increase if:
- The borrower is a profitable firm, suggesting a lower risk of default.
- Interest rates have fallen since the loan was made, making the fixed-rate loan more valuable as it offers a higher interest return relative to new loans at current lower rates.
In the financial market, the quantity of loans made and received is likely to increase if there is a rise in demand for loans or a rise in supply of loanable funds. A fall in demand or a fall in supply would typically lead to a decrease in the quantity of loans.