CASE: Maynard (B)

Diane Maynard was grateful for the balance sheets that her friend prepared (see Case 2-1
Maynard company (A),). In going over the numbers she remarked, “It is 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 I 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 for June: (a) $ 14,715
and (b) $ 36,030. Under what circumstances would these amounts be correct cost of
sale amounts?

CASH RECEIPTS AND DISBURSEMENTS for the month of JUNE

Cash receipts in $ Cash disbursements in $
Cash sales 44,420.00 Equipment 23,400.00
purchased
Credit customers 21,798.00 Other assets 408.00
purchased
Diane Maynard 11,700.00 Payments on 8,517.00
accounts payable
Bank loan 20,865.00 Cash purchase of 14,715.00
merchandise
Cash purchase of 1,671.00
supplies
Dividends 11,700.00
Wages paid 5,660.00
Utilities paid 900.00
Miscellaneous 135.00
payments
TOTAL RECIEPTS 98,783.00 TOTAL 67,106.00
DISBURSEMENTS

1
Reconciliation: (in $)
Cash balance as of June 34,983.00
Receipts 98,783.00
Sub total 133,766.00
Disbursements 67,106.00
Cash balance June 30 66,660.00