Case 3-1 Maynard
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
Expenses
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
Utilities 900
Wages (5,660+2,202-1,974) 5,888
Miscellaneous 135 10,421
Income before taxes(31,580 – 10,421) 21,159
Income Tax Expense (7,224 – 5,700) 1,524
Net Income 19,635 Dividends 11,700
Increase in retained earnings $7,935
Cost of Sales: Merchandise purchased for cash $14,715 Merchandise purchased on credit 21,315
Inventory, June 1 29,835 Total goods available in June 65,835
Inventory, June 30 26,520
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
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
Expenses
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
Utilities 900
Wages (5,660+2,202-1,974) 5,888
Miscellaneous 135 10,421
Income before taxes(31,580 – 10,421) 21,159
Income Tax Expense (7,224 – 5,700) 1,524
Net Income 19,635 Dividends 11,700
Increase in retained earnings $7,935
Cost of Sales: Merchandise purchased for cash $14,715 Merchandise purchased on credit 21,315
Inventory, June 1 29,835 Total goods available in June 65,835
Inventory, June 30 26,520
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