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    Case - Maynard Company (A)

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    Sujay Saxena
    The document discusses a company's financial statements and transactions for the month of June. It provides account balances at the start and end of June and cash receipt and disbursement details. Questions ask to prepare an income statement for June, explain differences between net income and change in cash, and discuss incorrect cost of sales amounts.

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    Case - Maynard Company (A)

    Uploaded by

    Sujay Saxena
    54 views2 pages
    The document discusses a company's financial statements and transactions for the month of June. It provides account balances at the start and end of June and cash receipt and disbursement details. Questions ask to prepare an income statement for June, explain differences between net income and change in cash, and discuss incorrect cost of sales amounts.

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    Maynard Cafe

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    The document discusses a company's financial statements and transactions for the month of June. It provides account balances at the start and end of June and cash receipt and disbursement details. Questions ask to prepare an income statement for June, explain differences between net income and change in cash, and discuss incorrect cost of sales amounts.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    54 views2 pages

    Case - Maynard Company (A)

    Uploaded by

    Sujay Saxena
    The document discusses a company's financial statements and transactions for the month of June. It provides account balances at the start and end of June and cash receipt and disbursement details. Questions ask to prepare an income statement for June, explain differences between net income and change in cash, and discuss incorrect cost of sales amounts.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    CASE – MAYNARD COMPANY (A)

    Diane Maynard made the following request of a friend:

    My bookkeeper has quit, and I need to see the balance sheets of my company. He has left behind a book
    with the numbers already entered in it. Would you be willing to prepare balance sheets for me? Also,
    any comments you care to make about the numbers would be appreciated. The Cash account is healthy,
    which is a good sign, and he has told me that the net income in June was $19,635.

    The book contained a detailed record of transactions, and from it the friend was able to copy off the
    balances at the beginning of the month and at the end of the month as shown in Exhibit 1. Diane
    Maynard owned all the stock of Maynard Company. At the end of June, Diane Maynard paid herself an
    $11,700 dividend and used the money to repay her loan from the company.

    Questions

    1. Prepare balance sheets as of June 1 and as of June 30, in proper format.


    2. Make comments about how the financial condition as of the end of June compared with that at the
    beginning of June.
    3. Why do retained earnings not increase by the amount of June net income ?
    4. As of June 30, do you feel that Maynard Company is worth the amount in Shareholder’s Equity,
    $619,446 ? Explain.

    EXHIBIT 1 - Account Balances

    1 June 30th June


    Debit Credit Debit Credit
    Accounts payable © $ 8,517 $ 21,315
    Accounts receivable (D) 21,798 26,505
    Accrued wages payable © 1,974 2,202
    Accumulated depreciation on building © 156,000 157,950
    Accumulated depreciation on equipment © 5,304 5,928
    Bank notes payable © 8,385 29,250
    Building (D) 585,000 585,000
    Capital stock © 390,000 390,000
    Cash (D) 34,983 66,660
    Equipment (at cost) (D) 13,260 36,660
    Land (D) 89,700 89,700
    Merchandise inventory (D) 29,835 26,520
    Note receivable, Diane Maynard (D) 11,700 0
    Other noncurrent assets (D) 4,857 5,265
    Other noncurrent liabilities © 2,451 2,451
    Prepaid insurance (D) 3,150 2,826
    Retained earnings © 221,511 229,446
    Supplies on hand (D) 5,559 6,630
    Taxes payable © 5,700 7,224
    CASE – MAYNARD COMPANY (B)

    Diane Maynard was grateful for the balance sheets that her friend prepared [see Case A], Maynard
    Company (A)]. In going over the numbers, she remarked, “It’s sort of surprising that cash increased
    by $31,677, but net income was only $19,635. Why was that?”
    Her friend replied, “A partial answer to that question is to look at an income statement for June. I
    think I can find the data I need to prepare one for you.”

    In addition to the data given in the (A) case, her friend found a record of cash receipts and
    disbursements, which is summarized in Exhibit 1. She also learned that all accounts payable were to
    vendors for purchase of merchandise inventory and that cost of sales was $39,345 in June.

    Questions

    1. Prepare an income statement for June in proper format. Explain the derivation of each item on
    this statement, including cost of sales.

    2. Explain why the change in the cash balance was greater than the net income.

    3. Explain why the following amounts are incorrect cost of sales amounts for June: (a) $ 14,715 and
    (b) $36,030. Under what circumstances would these amounts be correct cost of sales amounts?

    EXHIBIT 1

    Cash Receipts and Disbursements


    Month of June
    Cash Receipts Cash Disbursements
    Cash sales $44,420 (I) Equipment purchased (B) $23,400
    Credit customers 21,798 (B/I) Other assets purchased (B) 408
    Diane Maynard 11,700 (B) Payments on accounts payable (B/I) 8,517
    Bank Loan 20,865 (B) Cash purchases of merchandise (I) 14,715
    Total receipts $98,783 Cash purchase of supplies (I) 1,671
    Dividends (-) 11,700
    Wages paid (I) 5,660
    Utilities paid (I) 900
    Miscellaneous payments (I) 135
    Total disbursements $67,106
    Reconciliation:
    Cash balance, June 1 $ 34,983
    Receipts 98,783
    Subtotal $133,766
    Disbursements 67,106
    Cash balance, June 30 $ 66,660

    _____________________________________________________________________________________

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