Accounting Problem: Maynard Case (B)

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Statement of the Problem

Case 3-1
Maynard Company (B)
Diane Maynard was grateful for the balance sheets that her friend prepared. In going over the numbers, she remarked, “It’s sort of surprising that cash increased by $31,667, but net income was only $19,635. Why was that?” Her friend replied, “A partial answer to that questionis to look at an income statement for June. I think I can find the data I need to prepare on 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 then 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

Given
1. Cost of Sales = $39,345
2. June 1 Balance Sheet
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3. June 30 Balance Sheet
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4. Cash Receipts and Disbursements for the month of June
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Solution

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

a) Income Statement:
[pic]

b) Derivations
i. Sales revenue:
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ii. Cost of sales:
[pic]

iii. Operating expenses:
[pic]

iv. Provision for income tax:
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Question 2. Explain why the change in the cash balance was greater than the net income.
[pic]

- Change in cash balance was greater than the net income because the company received cash payments (for their sales, receivables and bank loan) more...
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