Question Description

Sarah and Gabe are considering the following transactions and have asked you to explain the impact of the transactions on their Statement of Financial Position:

Purchase a baseball card collection from Gabe’s uncle for $5,000 cash. Gabe feels the cards are worth more than $5,000. There has never been an official appraisal of the collection.

Secure a home-equity loan of $25,000 to have on hand for various projects and possibly to take a family vacation abroad.

Trade the pick-up for an SUV at a cost of $40,000. They will use their pick-up truck as a trade-in as a down payment, the current value is estimated at $7,000, and borrow the balance at a projected rate of 5%.

Also, they anticipate their respective 401(k) accounts increasing in value by 15% this year and have asked if this will have any impact on their financial statements.