Question

Which of the following would increase assets?

1. Provide services to customers on account
2. Purchase office supplies on account
3. Pay dividends to stockholders
4. Receive a utility bill but do not pay it immediately

Answer 1

To increase assets, 'providing services to customers on account' is the correct choice, as it increases accounts receivable. Money listed under assets on a bank's balance sheet may not be physically present due to fractional-reserve banking. The value of a loan in the secondary market is influenced by the borrower's payment history and current economic interest rates.

Step-by-step explanation:

The question is asking which of the following actions would increase assets. Let's address each option:

1. Provide services to customers on account will increase assets because it generates accounts receivable, which is an asset.
2. Purchase office supplies on account will increase one asset (supplies) while simultaneously increasing a liability (accounts payable), so the net effect on assets alone is not an increase.
3. Pay dividends to stockholders does not increase assets; it decreases them as cash is paid out of the company.
4. Receive a utility bill but do not pay it immediately results in a new liability (utility payable) and does not increase assets.

Regarding the balance sheet question:

The money listed under assets on a bank's balance sheet may not be physically present in the bank because banks use a portion of the deposits to extend loans to other customers or to invest in various financial instruments. This practice is known as fractional-reserve banking, where only a fraction of bank deposits are kept in reserve, and the rest is used to generate income through loans and investments.

When considering buying loans in the secondary market:

1. You would likely pay less for a loan if the borrower has been late on loan payments, reflecting a higher risk of default.
2. If interest rates in the economy have risen since the bank made the loan, you might pay less because the loan's fixed interest rate is now less attractive compared to current market rates.
3. A loan to a borrower that is a firm with high profits may be worth more due to the reduced risk of default.
4. If interest rates have fallen since the loan was made, the loan's fixed rate may be more attractive, so you might pay more for it.