Final answer:
A misstatement concerning an illegal payment not recorded would most likely materially affect financial statements. Money on a bank's balance sheet might not be in the bank because it is loaned out. The value of loans in the secondary market varies based on payment history, changes in interest rates, and borrower profitability.
Step-by-step explanation:
Impact of Misstatements on Financial Statements
Among the misstatements listed, an illegal payment to a foreign official that was not recorded would most likely have a material effect on an entity's financial statements. This is because it could implicate the company in legal issues, lead to fines and penalties, and have a severe impact on the entity's reputation and financial stability. On the other hand, not retiring obsolete office equipment or a petty cash fund disbursement that was not properly authorized represent small errors that are less likely to materially affect the financial statements. An uncollectible account receivable that was not written-off could have a material effect depending on the size relative to the company's financial position, but an illegal payment is more inherently material due to potential legal consequences and impact on shareholder trust.
Understanding Assets on a Bank's Balance Sheet
The money listed under assets on a bank balance sheet may not be physically present in the bank due to the nature of banking operations. Banks engage in lending activities, meaning that a significant portion of their assets is distributed as loans to customers. These assets generate interest income, which is a primary revenue source for banks. However, this lending means that the cash is not sitting in the bank but is instead being used elsewhere in the economy.
Valuation of Loans in the Secondary Market
When buying loans in the secondary market, several factors affect the price one might be willing to pay:
If the borrower has been late on a number of loan payments, the loan is riskier, and one would likely pay less for it due to an increased chance of default.
If interest rates in the economy have risen since the loan was originated, the older loan at a now lower interest rate is less attractive, leading a buyer to pay less for it.
If the borrower is a firm that has just declared high profits, the loan is considered safer, and a buyer might be willing to pay more for it due to lower perceived risk.
If interest rates have fallen since the loan was issued, the loan has higher relative yields, making it more valuable, and a buyer might pay more for it.