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P10.9 A motel has the following balance sheets at the end of each of its most recent two years of operation. Assets 12-31-2007 12-31-2008

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P10.9 A motel has the following balance sheets at the end of each of its most recent two years of operation. Assets 12-31-2007 12-31-2008 Cash $ 8,800 $ -0- Accounts receivable 17,200 30,600 Inventory 2,100 5,500 Land 20,000 20,000 Building 50,600 100,600 Accumulated depreciation, building 30,000) 40,000) Total Assets $68,700 $116,700 Liabilities & Stockholders' Equity Accounts payable $ 6,700 $ 12,800 Bank loan payable -0- 7,900 Long-term mortgage on building -0- 30,000 Common stock 2,000 2,000 Retained earnings 60,000 64,000 Total Liabilities & Stockholders' Equity $68,700 $116,700 The income statements provide the following information: 12-31-0007 12-31-0008 Sales revenue Operating costs $100,000 90,000 Net income $ 10,000 $110,000 93,200 $ 16,800 The statement of retained earnings for 12-31-0008 shows: Retained earnings, December 31, 0007 Net income for Year 0008 $60,000 16,800 Subtotal 76,800 Cash dividends 12,800) Retained earnings, December 31, 0008 $64,000 The owner cannot understand why he has $64,000 of retained earnings and a net income of $16,800 after tax from Year 0008 but has no money in the bank. Give the owner any explanations you can using this information. CASE 10 461

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