Both balance sheets shown in the following table were dated as of December 31, Year 3:

Required
a. Based only on the information shown in the balance sheets, can Allen Co. pay a $2,000 cash dividend?
b. Based only on the information shown in the balance sheets, can White Co. pay a $1,000 cash dividend?
c. Reconstruct the balance sheets for each company using percentages for the liabilities and stockholders’ equity sections of the statements instead of dollar values. Which company is more financially stable? Why?
d. Define the right side of an accounting equation without using the terms liabilities or stockholders’ equity.

Transcribed Image Text:

Balance Sheets for Allen Co. White Co. Assets $10,000 Cash Land $12,000 $12,000 $ 3,000 $10,000 $ 7,500 Total Assets Liabilities Common Stock 2,000 7,200 Retained Earnings Total Liab. and Stk. Equity 500 1,800 $12,000 $10,000