Final answer:
An asset use transaction is when one asset is exchanged for another, such as purchasing land for cash. Money on a bank balance sheet may not be present in the form of cash due to fractional reserve banking. The valuation of loans in the secondary market can be influenced by payment history, changes in interest rates, and the borrower's profitability.
Step-by-step explanation:
Asset Use Transaction
The action described as an asset use transaction is: A) Purchased land for cash. This transaction involves the exchange of one asset (cash) for another asset (land), which results in a change in the composition of the company's assets, but not an increase or decrease in the total amount of assets.
Bank Balance Sheet and Loan Valuation
The money listed under assets on a bank's balance sheet may not actually be in the bank because of the practice known as fractional reserve banking. In this system, banks are required to keep only a fraction of their deposit liabilities in reserve as cash or with the central bank. The rest of the money can be used for loans and investments, which generates income for the bank but means that not all deposited funds are readily available in cash form.
When buying loans in the secondary market, several factors affect the valuation:
If interest rates in the economy have fallen since the loan was made, one could pay more, as the loan interest rate is higher than the current market rates, making it more profitable.