Early in the year 2016, John Roberts, a recent graduate of Southeast State College, delivers the financial statements shown on the next page 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?

Transcribed Image Text:

Dennis, Inc. Comparative Balance Sheet December 31, 2015 and 2014 2015 2014 Assets Cash Accounts receivable Inventory Equipment (at cost). Accumulated depreciation Total assets . .. 3,000 5,000 8,000 15,000 52,000 20,000 (10,000 (5,000) ....83000 $43,000 18,000 20,000 Liabilities and Stockholders' Equity Accounts payable Notes payable-long-term Common stock,$1 par Additional paid-in capital Retained earnings Total liabilities and stockholders' equity 40,000 2,000 18,000 19,000 2,000 18,000 14,000 43,000 Dennis, Ind. Combined Statement of Income and Retained Earnings For the Year Ended December 31, 2015 Sales $240,000 $150,000 70,000 220,000 $ 20,000 14,000 (15,000) S 19000