Online Postgraduate Diploma in Management: 2022-24 Term 1 | Mid-Term Duration: NA No.

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Examination Template Page(s): 5
Financial Accounting and Decision Making (FADM)

CASE – MAYNARD COMPANY

Diane Maynard made the following request of a friend:

My bookkeeper has quit, and I need to see the balance sheets of my company. He has left behind a bookwith
the numbers already entered in it. Would you be willing to prepare balance sheets for me? Also, any comments
you care to make about the numbers would be appreciated. The Cash account is healthy,which is a good sign,
and he has told me that the net income in June was $19,635.

The book contained a detailed record of trHintactions, and from it the friend was able to copy off the balances at
the beginning of the month and at the end of the month as shown in Exhibit 1. Diane Maynard owned all the stock
of Maynard Company. At the end of June, Diane Maynard paid herself an
$11,700 dividend and used the money to repay her loan from the company.

EXHIBIT 1 - Account Balances

June 1 June 30
Accounts payable $ 8,517 $ 21,315
Accounts receivable 21,798 26,505
Accrued wages payable 1,974 2,202
Accumulated depreciation on building 156,000 157,950
Accumulated depreciation on equipment 5,304 5,928
Bank notes payable 8,385 29,250
Building 585,000 585,000
Capital stock 390,000 390,000
Cash 34,983 66,660
Equipment (at cost) 13,260 36,660
Land 89,700 89,700
Merchandise inventory 29,835 26,520
Note receivable, Diane Maynard 11,700 0
Other noncurrent assets 4,857 5,265
Other noncurrent liabilities 2,451 2,451
Prepaid insurance 3,150 2,826
Retained earnings 221,511 229,446
Supplies on hand 5,559 6,630
Taxes payable 5,700 7,224

Her friend replied, “A partial Hintwer to that question is to look at an income statement for June. Ithink I
can find the data I need to prepare one for you.”

In addition to the data given in Exhibit 1 above, her friend found a record of cash receipts and disbursements,
which is summarized in Exhibit 2. She also learned that all accounts payable were tovendors for purchase of
merchandise inventory and that cost of sales was $39,345 in June.

EXHIBIT 2

Cash Receipts and Disbursements Month of June

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 Cash Receipts Cash Disbursements
Cash sales $44,42 Equipment purchased $23,40
0 0
Credit customers 21,798 Other assets purchased 408
Diane Maynard 11,700 Payments on accounts payable 8,517
Bank Loan 20,865 Cash purchases of merchandise 14,715
Total receipts $98,783 Cash purchase of supplies 1,671
Dividends 11,700
Wages paid 5,660
Utilities paid 900
Miscellaneous payments 135
Total disbursements $67,106
Reconciliation:
Cash balance, June 1 $ 34,983
Receipts 98,783
Subtotal $133,766
Disbursements 67,106
Cash balance, June 30 $ 66,660

You are required to Hintwer few questions for Maynard by -

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

Hint: Prepare a Balance Sheet as per the Companies Act 2013. Kindly prepare it over Excel and paste it into
the document below the respective question.

Please refer to the practice mid-term solution

To convert an Excel table to Word, you can follow these simple steps:

1. Open the Excel file that contains the table you want to convert to Word.

2. Select the entire table by clicking on the top-left cell and dragging the cursor to the bottom-right cell.

3. Right-click on the selected cells and choose "Copy" from the context menu, or use the keyboard shortcut
Ctrl+C.

4. Open a new or existing Word document where you want to insert the table.

5. Place your cursor at the location in the Word document where you want to insert the table.

6. Right-click and choose "Keep Source Formatting" under "Paste Options" in the context menu, or use the
keyboard shortcut Ctrl+V to paste the table into Word.

7. You can adjust the table formatting in Word as needed.

That's it! Your Excel table should now be converted and pasted into Word.

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 2. Making comments about how the financial condition as of the end of June compared with that
at the beginning of June based on the balance sheet.
Hint - When making comments about how the financial condition at the end of June compared to that
at the beginning of June based on the balance sheet, a student should follow these basic steps:

1. Review the balance sheet as of the beginning of June and the balance sheet as of the end of June
to identify any significant changes in the account balances.

2. Analyze the changes in the account balances by comparing the beginning of June and end of June
balance sheet figures for the same account.

3. Identify any trends or patterns that emerge from the analysis, such as increases or decreases in
assets or liabilities.

4. Comment on the financial condition based on the analysis. For example, if there was a significant
increase in cash balance from the beginning of June to the end of June, the student might
comment that the company's liquidity position improved over the period.

5. Consider any other relevant information that might impact the financial condition. For example, if
the company took on a large loan during the period, this would impact the financial condition
even if there was no significant change in account balances.

6. Finally, provide a brief summary of the overall financial condition based on the analysis and any
other relevant information. This summary should provide a clear and concise overview of how
the company's financial condition has changed over the period.

3. As of June 30, do you feel that Maynard Company is worth the amount in Shareholder’s Equity,
$619,446?
Hint: When determining whether Maynard Company is worth the amount in shareholder's equity as of June 30, a student
should follow these basic steps:

1. Review the components of shareholder's equity to ensure that they are accurately recorded and reflect the true
value of the company's assets and liabilities.

2. Evaluate the company's financial performance, liquidity, and other relevant factors to determine whether the
shareholder's equity figure accurately represents the company's worth.

3. Consider any other relevant factors, such as changes in market conditions, competitive landscape, or regulatory
environment that may impact the company's worth.

4. Compare the shareholder's equity figure to other valuation methods, such as market-based valuation or
discounted cash flow analysis, to determine whether the figure is reasonable.

5. Based on the analysis, provide a conclusion as to whether the shareholder's equity figure accurately reflects the
company's worth as of June 30.

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 4. Preparing an income statement for June in proper format. Explain the derivation of each item on this statement,
including cost of sales.
Hint: Prepare an Income Statement for June in the format taught during the LVCs. You can create it over excel and paste it
in the document.

5. In going over the numbers Diane remarked, “It’s sort of surprising that cash increased by
$31,677, but net income was only $19,635. Why was that?” Can you explain why the change in
the cash balance was greater than the net income?
Hint: To explain why the change in the cash balance was greater than the net income, a learner can
follow these generic steps:

1. Start by reviewing the cash flow statement for the period in question.

2. Analyze the operating activities section of the cash flow statement to identify any non-cash items
that might have impacted net income but did not affect the cash balance.

3. Identify any changes in working capital accounts, such as accounts receivable, accounts payable,
or inventory, that might have impacted the cash balance.

4. Consider any other factors that may have impacted the cash balance, such as the sale of assets,
issuance of debt or equity, or changes in investment activities.

5. Based on the analysis, provide a clear and concise explanation for why the change in the cash
balance was greater than the net income. This explanation should be specific to the company
and the period in question and should take into account any relevant factors that were
identified during the analysis.

6. Explain why the following amounts are the incorrect cost of sales amounts for June: (a) $ 14,715 and (b)
$36,030. Under what circumstances would these amounts be the correct cost of sales amounts?

Hint: To explain why the given amounts are the incorrect cost of sales amounts for June and the circumstances
under which they could be the correct cost of sales amounts, a learner can follow these generic steps:

1. Start by reviewing the definition of cost of sales. Cost of sales is the direct cost incurred in producing or
acquiring goods sold by a company. It includes the cost of materials, direct labor, and other directly related
costs, but excludes indirect costs such as overhead and administrative expenses.

2. Evaluate the cost of sales amounts given in the problem to identify any obvious errors or inconsistencies.
For example, the amounts may be too high or too low based on the company's operations during the
period.

3. Review the financial statements and supporting documentation for the period in question to identify any
discrepancies or errors that may have led to the incorrect cost of sales amounts. For example, a mistake in
the recording of inventory purchases or sales could impact the cost of sales calculation.

4. Consider the circumstances under which the given amounts could be correct cost of sales amounts. For
example, if the company experienced a significant increase in the cost of materials during the period, this
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 could result in a higher cost of sales amount than expected.

5. Provide a clear and concise explanation for why the given amounts are incorrect cost of sales amounts for
June, and under what circumstances they could be correct cost of sales amounts. This explanation should
be specific to the company and the period in question and should take into account any relevant factors
that were identified during the analysi