Lewis Ltd. has been in business for several years. They have asked you as an accounting consultant to help them with a number of accounting and finance issues related to their 2008 results. They have constructed the following Balance Sheet with comparative figures for 2007 and an Income Statement for 2008. Lewis Ltd. Balance Sheet At December 31, 2008 and 2007 December 31, 2008 2007 Cash Accounts receivable Inventory Prepayments Total current assets Land Plant and equipment Accumulated depreciation Long-term investments $ 128,400 $ 90,000 50,000 40,000 150,000 120,000 12,000 15,000 340,400 265,000 651,000 440,000 790,000 500,000 (230,000) (200,000) 100,000 180,000 Patents 130,000 150,000 Total long-term assets 1,441,000 1,070,000 Total assets Accounts payable $ 1,781,400 $ 1,335,000 $ 70,000 $ 56,000 Other accrued liabilities 57,000 45,000 Income taxes payable 34,000 20,000 Dividends 40,000 Notes payable due within the next year 40,000 Total current liabilities 201,000 161,000 Long-term notes payable 60,000 100,000 Bonds payable 440,000 300,000 Total long-term liabilities 500,000 400,000 Common stock 500,000 400,000 Retained earnings 580,400 374,000 Total shareholders' equity 1,080,400 774,000 Total liabilities and shareholders' equity $ 1.781.400 $ 1,335,000 Lewis Ltd. Income Statement For the year ended December 31, 2008 Sales Cost of goods sold Operating expenses Gain on sale of equipment Income before interest and taxes Interest expense Income before taxes Income tax expense (40%) Net income $ 1,600,000 $ (900,000) (290,000) 4,000 You are also able to discover the following additional information: 1. All sales are on account, as are all purchases. (1,186,000) 414,000 (70,000) 344,000 (137,600) $206.400 2. New Bonds were issued for the purchase of land. Additional land was purchased for cash. 3. Equipment that had originally cost $50,000 was sold for cash of $34,000. The amortization for plant and equipment is included in operating expenses. 4. Long-term investments were sold for cash during the year. No gain or loss was recorded on the sale. 5. No new patents were acquired and none were disposed of during the year. Amortization of patents is included in operating expenses. 6. "Notes payable due within the next year" represents the amount reclassified from long-term to short-term. 7. At the beginning of 2008, there were 40,000 common shares issued and outstanding. Ten thousand additional common shares were issued during the year. Required: 1. Lewis Ltd. has an excellent bookkeeper on staff but no professional accountant. The bookkeeper has compiled the foregoing information and statements but he is not able to do the Statement of Cash Flows. Lewis' first request of you is that you complete a formal Statement of Cash Flows for them using the indirect method. 2. Calculate the Profit Margin for Lewis Ltd. 3. For several years, Lewis has paid an annual dividend of $1 per share. Management feels that Lewis has had another strong year and they are thinking of awarding a dividend but they are concerned about the effect of a dividend on the company's cash position, particularly in light of the notes payable coming due in 2009. The company president would like to continue with $1 per share. They have asked for your recommendation as to whether they should pay and the amount (if any)