Balance Sheet: Statement of Financial Position
I. STATEMENT OF PROBLEM
Diane Maynard’s bookkeeper has quit and a friend was asked to help her address the following issues at her company: 1. Prepare the Balance Sheets as of June 1 and as of June 30. 2. Compare the financial condition of the company in these two periods. 3. Explain why retained earnings did not increase by the amount of June net income. 4. Comment on the value of Maynard Company to its shareholders.
II. FACTS OF THE CASE
1. Exhibit 1 – Account Balances:(figures from page 46 of the book) 2. June Net Income: $19,635
3. Dividends withdrawn by Diane Maynard:$11,700
III. ALTERNATIVE COURSES OF ACTION
The only option is to prepare Maynard’s balance sheet for the two periods in order to draw out the needed answers and recommendations for Diane Maynard.
1. Prepare the Balance Sheets as of June 1 and as of June 30.
2. Compare the financial condition of the company in these two periods.
In order to objectively compare the two periods, current ratio and retained earnings were used as measures for comparison.
3. Explain why retained earnings did not increase by the amount of June net income.
| |229,446 |Retained Earnings as of June 1 | |- |221,511 |Retained Earnings as of June 30 | | |7,935 | | |+ |11,700 |Dividends withdrawn by Diane Maynard | | |19,635 | |
$11, 700 was withdrawn by Diane Maynard from the retained earnings and used the money to repay her loan from the company hence this was recorded under notes receivable in June 1.
4. Comment on the value of Maynard Company to its...