On January 1, Year 1, Eastwood Company is started when it issues 100 shares of $10 par
Question:
On January 1, Year 1, Eastwood Company is started when it issues 100 shares of $10 par value stock for a cash price of $15 per share. Also, on January 1 Year 1, Eastwood borrows $35,000 cash by issuing a note payable to the Metropolitan Bank. Eastwood immediately purchases land that costs $36,000 cash. During Year 1 Eastwood earns $7,000 of cash revenue and incurs $4,000 of cash expenses. No other transaction occurred during Year 1.
Required
a. If the bank demands repayment of the note on January 1, Year 2, does Eastwood have the funds available to repay the loan?
b. Determine the amount of cash on hand as of January 1, Year 2.
c. Determine the total amount of liabilities as of January 1, Year 2.
d. Assume that Eastwood is forced to liquidate its business on January 1, Year 2. Further, assume that in the process of liquidation Eastwood has to sell the land for $27,000. Under these circumstances:
1. Determine the amount of cash that the bank would receive in the liquidation.
2. Determine the amount of cash that the investors would receive in the liquidation.
Step by Step Answer:
Introductory Financial Accounting For Business
ISBN: 9781260575309
2nd Edition
Authors: Thomas Edmonds, Christopher Edmonds, Mark Edmonds, Jennifer Edmonds, Philip Olds