Impact of Transactions On Statement Of Financial Position

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.