Lewis Enterprises was started when it acquired $4,000 cash from creditors and $6,000 from owners. The company

Question:

Lewis Enterprises was started when it acquired $4,000 cash from creditors and $6,000 from owners. The company immediately purchased land that cost $9,000. The land purchase was the only transaction occurring during Year 2.

Required
a. Create an accounting equation and record the events under the equation.
b. As of December 31, Year 1, Lewis’s obligations to creditors represent what percentage of total assets?
c. As of December 31, Year 1, Lewis’s stockholders’ equity represents what percentage of total assets?
d. What is the maximum cash dividend Lewis can pay on December 31, Year 2?
e. Assume the debt is due December 31, Year 2. Given that Lewis has $10,000 in stockholders’ equity, can the company repay the creditors at this point? Why or why not?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...

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