Use the following to answer questions $8-10.$

On January $2,$ John Green started the Green Company. In January, Green Company did the following:

a$)$ It received $$10,000$ cash from John as its capital.

b$)$ It borrowed $$10,000$ from a bank, giving a note therefore.

c$)$ It purchased $$8,000$ of inventory for cash.

d$)$ It sold $$2,000$ of its inventory for $$6,000$ to a customer, who paid $$3,500$ cash and agreed to pay $$2,500$ within $30$ days.

e$)$ It purchased an auto for $$7,000.$ It paid $$2,000$ down and gave a note to the automobile dealer for the remaining $$5,000.$

f$)$ John withdrew $$2,000$ cash for his personal use.

g$)$ John was offered $$10,000$ for his equity in the business, but he refused the offer.

Below is an income statement for January and a balance sheet as of the close of business January $31.$

Green Company

Income Statement for January

Revenue $$6,000$

Expense $2,000$

Income $$4,000$

Green Company

Balance Sheet as of January $31$

Assets

Cash $$11,500$

Accounts receivable $2,500$

Inventory $6,000$

Automobile $7,000$

Total $$27,000$

Liabilities and Equity

Notes payable $$15,000$

Paid$-$in capital $10,000$

Retained earnings $2,000$

Total $$27,000$

$8.$ Why, if income was $$4,000,$ is Retained Earnings only $$2,000?$

a$.$ Depreciation on the automobile did not require cash.

b$.$ Contributed capital was more than the amount of inventory purchased.

c$.$ Dividends reduce retained earnings.

d$.$ Generally accepted accounting principles are not perfect.

$9.$ Assuming no other changes, how would the financial statements be different if Green Company had borrowed the entire cost of the automobile?

a$.$ Total assets would be $$2,000$ greater, and total liabilities would be $$2,000$ greater.

b$.$ Depreciation expense would increase.

c$.$ Total assets would be smaller.

d$.$ There would be no difference.

$10.$ Assuming no other changes, how would the financial statements be different if Green Company had received $$20,000$ from John, instead of $$10,000,$ and borrowed nothing, instead of $$10,000,$ from the bank?

a$.$ Total assets be $$10,000$ greater.

b$.$ Total assets would be the same.

c$.$ Total assets would be smaller.

d$.$ The only effect would be on the income statement.