Maynard Company Solution

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Cash increased very much, because bank notes payables and accounts payable increased very much. And we can may be assume that there are also gains from the company’s activities. Thus, accounts receivable slightly increased, in parallel with the company’s activities we can also assume that company sales increased. Company is not in trouble with receivables.

Retained Earnings didn’t increase by the amount of net income for the month because, Diane Maynard got a dividend of 11.700 USD which she then used to repay her loan. Thus Retained Earnings just got increased by 7,935 USD (=19,635-11,700).

Shareholder’s Equity does not necessarily equals to the worth of entity. If we assume that net income is at a monthly average value, (lets round it up to 20.000). 20.000 * 12 = 240.000 USD will be at least the net income for the year. As in our example, as it is the half of the year, we can assume that 240.000 / 2= 120.000 can be added to the equity(in the going concern concept; which states the entity will continue to operate for an indefinitely long period in the future. ) I think the entity is in Going Concern because its Current Ratio (Current Assets / Current Liabilities) is equal to 2,15 at the end of June. It is a very satisfactory ratio. So if we add 120.000 USD to the equity and at least company is at (619.446 + 120.000 = 739.446 USD) worth.
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