Case 3-1 Maynard

Topics: Revenue, Generally Accepted Accounting Principles, Balance sheet Pages: 2 (454 words) Published: October 7, 2013
Critique Paper: Case 3-1 Maynard Company October 8, 2013 Case Overview:
Maynard had been surprised that the cash she had increased by $31,677 yet her net income was only $19,635. She asked a friend to help her find out what the reason was, so consequently she referred to the income statement and said that she could prepare one for Diane. Her friend also came up with the cost of sales figure which was $39,345 for the month of June. Problem of the Case:

Q1: Income Statement

Revenue(Cash Sales + credit sales)70,925
Cost of Sales(39,345)
Gross Margin$31,580
Depreciation on building (157,950 – 156,000)1,950
Depreciation on equipment (5,928 – 5,304)624
Insurance (3,150 – 2,826)324
Supplies 600
Wages (5,660+2,202-1,974)5,888

Income before taxes(31,580 – 10,421)21,159
Income Tax Expense (7,224 – 5,700)1,524
Net Income19,635
Increase in retained earnings$7,935

Cost of Sales:
Merchandise purchased for cash$14,715
Merchandise purchased on credit21,315
Inventory, June 129,835
Total goods available in June65,835
Inventory, June 3026,520
Cost of Sales$39,345
*The purchase of equipment (36,660 – 13,260) which cost $23,400 and other assets which cost $403 decreased the cash but did not affect the net income in this period. *Credit sales or accounts receivable increase net income but did not affect the cash account. *Expenses which were noncash such as depreciation and insurance did not affect cash for this period since these will be accumulated through time and will eventually be paid at the end of the year or at a certain period. Q2: The cash balance also included the bank loan that Maynard had transacted during this period which increased her cash but did not affect net income. Credit sales (accounts receivable) also increased cash but did not include affect the net income of the business. Q3:A. The $14,715 is incorrect because this amount...
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