ASMPH YL7 Group 2

SPFINACC GAGELONIA, Janelle

Prof. Dela Vega LAPID, Princess
LEE, Jethro
LOZANO, Patrick Nicolo Mari

Case 2-1
Maynard Company (A)

1. Prepare balance sheets as of June 1 and as of June 30, in proper format.

2. Make comments about how the financial condition as of the end of June compared with
that at the beginning of June.

The balance sheet shows an increase in several accounts under assets (cash, accounts
receivable, supplies on hand, equipment, and other noncurrent assets) and under liabilities (accounts
payable, bank notes payable, taxes payable, accrued wages payable) and shareholders equity
(retained earnings). There was increase in cash of $31,667 mostly due to gains in accounts payable,
bank notes payable and other operations. It was also increased by the collection of note receivables
from Diane Maynard ($11,700) but this was also paid to her as dividend by the end of the month. A
significant use of cash was in the purchase of equipment and other supplies which explains the
decrease of the current ratio from June 1 (4.32) to June 30 (2.15).

3. Why do retained earnings not increase by the amount of June net income?

The retained earnings increased only by $7,935 and not by the amount of June net income
($19,365) because Diane Maynard paid herself a dividend worth $11,700 which had to be deducted.

4. As of June 30, do you feel that Maynard Company is worth the amount in Shareholders
Equity, $619,446? Explain.

Net worth is defined as total assets minus total liabilities which gives us the value of the
company. Although, Shareholders Equity ($619,446 as of June 30) does not necessarily equate to what
the company is worth. Assuming we liquidate all the assets of the company and pay off all liabilities at
present, this can be lower than $619,446. Although, if we assume that the company will remain in
business for a significant length of time in the future, with a typical net income of $19,365, this will
probably increase the companys net worth.