Early in the year 2012, 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, €œWhat 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. Comparative Balance Sheet December 31, 2011 and 2010 2011 2010 Assets Cash Accounts recelvable Inventory Equipment (at cost) Accumulated depreclation Total assets 3,000 8,000 20,000 52,000 (10,000) $83,000 5.000 8,000 15,000 20,000 (5,000) $43,000 Llablitles and Stockholders' Equity Accounts payable Notes payable -long-term Common stock, $l par Additional pald-in capltal Retalned earnings Total liabilities and stockholders' equity $4,000 40,000 2,000 8,000 9,000 $83,000 9,000 2.000 8,000 14,000 $43,000 Dennis, Inc. Combined Statement of Income and Retained Earnings For the Year Ended December 31, 2011 Sales Cost of goods sold Operating expenses (Including depreclation of $5,000) Net income $240,000 $150,000 70,000 220,000 20,000 Retalned earnings. January . 2011 Deduct: Dividends pald 14,000 (15,000) $19,000 Retalned earnings, Decmber 3. 2011