Some Accountant You Are!
Early in the year 2009, John Roberts, a recent graduate of Southeast State College, delivers the financial statements shown below to Laura Dennis of Dennis, Inc. After a quick review, Dennis exclaims, “What do you mean I had net income of $20,000? I borrowed $40,000 from the bank and my cash balance decreased by $2,000. I must have had a loss! Some accountant you are!” How should Mr. Roberts answer Ms. Dennis?
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Dennis, Inc. |
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Comparative Balance Sheet |
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December 31, 2008 and 2007 |
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Assets |
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2008 |
2007 |
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Cash |
$ 3,000 |
$ 5,000 |
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Accounts receivable |
18,000 |
8,000 |
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Inventory |
20,000 |
15,000 |
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Equipment (at cost) |
52,000 |
20,000 |
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Accumulated depreciation |
(10,000) |
(5,000) |
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Total assets |
$83,000 |
$43,000 |
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Liabilities and Stockholders’ Equity |
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Accounts payable |
$ 4,000 |
$ 9,000 |
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Notes payable—long term |
40,000 |
— |
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Common stock, $1 par |
2,000 |
2,000 |
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Additional paid in capital |
18,000 |
18,000 |
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Retained earnings |
19,000 |
14,000 |
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Total liabilities and stockholders’ equity |
$83,000 |
$43,000 |
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Dennis, Inc. |
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Combined Statement of Income and Retained Earnings |
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For the Year Ended December 31, 2008 |
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Sales |
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$240,000 |
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Cost of goods sold |
$150,000 |
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Operating expenses (including depreciation of $5,000) |
70,000 |
220,000 |
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Net income |
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$ 20,000 |
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Add: Retained earnings, January 1, 2008 |
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14,000 |
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Deduct: Dividends paid |
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(15,000) |
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Retained earnings, December 31, 2008 |
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$ 19,000 |