Choose the correct answer in the following statements about financial and real assets. a. Toyota takes out a bank loan to finance the construction of a new factory.
Toyota (Click to select) a (Click to select) asset—the factory. The loan is a (Click to select) asset that is (Click to select) in the transaction.
b. Toyota pays off its loan. Fies When the loan is repaid, the (Click to select) asset is (Cick to select) but the Click to select) 9 asset continues to exist
c. Toyota uses $10 million of cash on hand to purchase additional inventory of spare auto parts. The cash is a (Click to select asset that is traded in exchange for a ICk toslet asset, inventory

Please refer to Explanation

Explanation:

A financial asset is a non-physical asset that that gets it's value from a contract that was signed by the parties involved.  Financial assets include Bonds, stocks and even cash amongst others.

Real Assets on the other hand are physical assets that can be seen and hence have an inherent value. Examples include buildings and cars.

a.  Toyota creates a real asset- the factory. The loan is a financial asset that is created in the transaction.

The factory becomes a real Asset that is tangible and has an inherent value. The loan was created by an agreement between Toyota and the bank and so is a Financial Asset.

b. When the loan is repaid, the financial asset is destroyed but the real asset continues to exist.

When the loan is repaid, Toyota no longer owns that financial asset because it has gone back to the bank. However, the Real Asset which is the factory that they were able to build will remain with Toyota.

c. The cash is a financial asset that is traded in exchange for a real asset, inventory.

As already mentioned, cash is a financial asset. Inventory is a tangible substance with an inherent value not determined by a contract and so is a Physical Asset. Trading cash for Inventory is therefore trading a financial asset for a physical one.

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