Question

Alexis Company was started in Year 1. At the end of Year 1 the Company had the following accounting equation. Assets Cash + Land 600 - 2,200 Liabilities Notes Payable 1,000 = - + Stockholders' Equity Common Stock + Retained Earnings 1,400 + 400 During Year 2, the company experienced the following accounting events. • Paid off $500 of its notes payable. • Earned $700 of cash revenue. • Paid $400 of cash expenses. • Paid a $100 cash dividend Based on this information alone, what percent of the company's assets at the end of Year 2 were provided by creditors?

Answer 1

Calculation of Cash at the end of Year 2

Cash balance at the end of Year 1	$600
Less: Paid off to notes payable	(500)
Add: Earned cash revenue	700
Less: Paid cash expenses	(400)
Less: Paid cash dividend	(100)
Cash balance at the end of Year 2	$300

Notes payable at the end of Year 2= Beginning balance-Paid off

= $1000-500= $500

Calculation of Notes Payable at the end of Year 2

Notes Payable at the end of Year 1	$1000
Less: Paid off to notes payable	(500)
Notes Payable at the end of Year 2	$500

Total assets at the end of Year 2= Cash+Land

= $300+2200= $2500

Creditors at the end of the Year 2= Notes payable= $500

Company's assets at the end of Year 2 were provided by creditors= Creditors*100/Total assets

= $500*100/2500= 20%

So, the answer is option A) 20%

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