The financial condition of White Co. Inc. is expressed in the following accounting equation:

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 Co. Inc. can pay.

d. If the obligation to creditors is due, can White Co. Inc. 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? Assume there are no legal fees or other costs of liquidation.

Transcribed Image Text:

Accounting Equation Assets = Llabilities + Common stock + Retalned earnings Cash Land $1,800 + $12,000 $6,000 + $5,000 $2,800