Final answer:
A note receivable is reported on a balance sheet in either current or noncurrent assets based on its maturity. Assets on a bank's balance sheet, like loans, may not physically be in the bank as they could be deployed elsewhere or held as reserves. The price for buying loans in the secondary market is influenced by the borrower's payment history, the current interest rate environment, and the borrower's financial situation. Hence, the correct answer is option (b).
Step-by-step explanation:
A note receivable is reported on the balance sheet in either current assets or noncurrent assets, depending on the note's maturity date. If the note is expected to be collected within one year or the operating cycle of the business (whichever is longer), it will be listed as a current asset. If the note's maturity extends beyond this period, it will be classified as a noncurrent asset.
The money listed as assets on a bank's balance sheet might not all be physically present in the bank because banks typically engage in lending activities. The cash could be distributed in the form of loans or could be kept in the form of reserves at the Federal Reserve bank. These loans are considered assets as they generate interest income for the bank.
When buying loans in the secondary market, the price paid can vary based on several factors:
- You would pay less for a loan if the borrower has a history of being late on loan payments, as this increases the risk of default.
- If interest rates have risen since the loan was made, a buyer may pay less for the loan because its fixed interest rate might be lower than the current market rates.
- You would pay more if the borrower is a company that has just reported a high level of profits, as their improved financial situation decreases the risk of default.