Question

The financial condition of White Inc. is expressed in the following accounting equation:
Assets = Liabilities + Common stock + Retained earnings
$800 Cash + $9,200 Land = $7,000 + $2,000 + $1,000
Required
a. Are dividends paid to creditors or investors? Explain why.
b. How much cash is in the Retained Earnings account?
c. Determine the maximum dividend White can pay.
d. If the obligation to creditors is due, can White repay the loan? Why or why not?
e. Suppose the land sinks into the sea as a result of an earthquake and a resulting tsunami. The business is then liquidated. How much cash will creditors receive? How much cash will investors receive?


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  • CreatedApril 20, 2015
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