Deutschetek Corporation performs service either for cash or on notes receivable. The business uses the direct write-off method to account for bad debts. Hilda Lyth, the owner, has prepared the company's financial statements. The most recent comparative income statements, for 20X3 and 20X2, are as follows: 20X3 20X2 Total revenue Total $220,000 $195,000 expenses. Net income. 107,000 $113,000 103,000 $ 92,000 On the basis of the increase in net income, Lyth wants to expand operations. She asks you to invest $50,000 in the business. You and Lyth have several meetings, at which you learn that notes receivable from customers were $200,000 at the end of 20X1 and $400,000 at the end of 20X2. Also, total revenues for 20X3 and 20X2 include interest at 13% on the year's beginning notes receivable balance. Total expenses include uncollectible-account expense of $2.000 each year, based on the direct write-off method. Lyth estimates that uncollectible- account expense would be 5% of sales revenue if the allowance method were used.

Required 1. Prepare for Deutschetek a comparative single-step income statement that identifies ser- vice revenue, interest revenue. uncollectible-account expense, and other expenses, all computed in accordance with generally accepted accounting principles. 2. Is Deutschetek's future as promising as Lyth's income statement makes it appear? Give the reason for your answer.