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E2-7 On December 31, 2004, Sellit, Inc.: 1000-06 Obtains $20,000 cash by selling common stock. Assume that the stock is sold at par value.

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E2-7 On December 31, 2004, Sellit, Inc.: 1000-06 Obtains $20,000 cash by selling common stock. Assume that the stock is sold at par value. interest of 10 percent annually on the balance is due on January 1 of each year, ex- 4,000-(2) Obtains $40,000 cash from Loanit Bank The loan is due on December 31, 2007, and cluding January 1, 2005. (3) Buys land, paying $5,000 cash. (4) Hires manager to begin work on January 1, 2005. The salary is $1,000 per month, payable on the first of each month, beginning February 1, 2005. (5) Prepays six-months' rent on a portable building, paying $3,000 cash. a. Prepare a balance sheet for Sellit as of the close of business on December 31, 2004 (i.e., refecting the preceding transactions). b. If Sellit were liquidated (i.e., all liabilities were paid and all remaining assets were sold with the proceeds distributed to common stock shareholders) at the opening of busi- ness on January 1, 2005, how much money would the shareholders receive? C. Could Sellit pay a cash dividend to common stock shareholders on January 1, 2005? How large could that dividend be? Would anyone likely be upset if Sellit paid a large cash dividend on January 1, 2005? Who?

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