Case 3-1

Cash Receipt
Cash Sales 44420
Credit customers 21798
Diane Maynard 11700
Bank Loan 20865

Total Cash Receipt 98783

Balance Sheet for the month June

Assets
Jun-01 Jun-30
Accounts Receivables 21798 26505
Building 585000 585000
less Depreciation on Building -156000 -157950
Cash 34983 66660
Equipments 13260 36660
less Depreciation on Equipments -5304 -5928
Land 89700 89700
Merchandise inventory 29835 26520
Note Receivable Diane Maynard 11700 0
Prepaid Insurance 3150 2826
Supplies on hand 5559 6630
Other Non-Current assets 4857 5265
Total Assets 638538 681888

Income Statement in the month of June

Net sales 70925
less Cost of Goods Sold
Merchandise inventory June 1 29835
Stock purchased for cash 14715
stock purchased on credit 21315
Merchandise inventory, June 30 -26520 -39345
Gross Profit 31580
less Expenses
Wages paid -5888
utilities paid -900
Depreciation -2574
Misc expenses -135
Supplies expenses -600
Insurance Expenses -324 -10421
 Operating income 21159
less Tax expenses -1524
Net income 19635
less Dividend -11700
Retained earnings 7935

Derivation of each Line Item

1 Net Sales=Cash Sales + Credit Sales 44420+26505
70925
2 Cash Sales=44420
Credit Sales=Account receivables, June 30 + Cash received from credit customer-Account receivables June 1
26505+21798-21798
26505
3 Cost of Goods sold = Opening stock + cash purchases +credit purchases - closing stock
29835+14715+21315-26520
39345
4 Credit purchases = Account payable June 30 + payments on account payable=Account payable June 1
21315+8517-8517
21315
5 Wages paid =Wages payable June 30 + wages paid - wages payable June 1
2202+5660-1974
5888
6 Depreciation expense = Depreciation on building + depreciation on equipment
1950+624
2574
7 Depreciation on building = Depreciation at end - Depreciation at beginning
157950-156000
1950
Depreciation on equipment = Depreciation at end -Depreciation at beginning
5928-5304
624
8 Supplies expense = Opening stock + Purchases-closing Stock
5559+1671-6630
600
9 Insurance + Prepaid Insurance June 1 - Prepaid insurance June 30
3150-2826
324
10 Tax expenses = Tax payable June 30 - Tax payable June 1
7224-5700
1524

a 14715 is incorrect because it is the amount of cash purchases only

rather than the cost of sales.

b
36030 is incorrect because it is the sum total of cash purchases
(14715) and credit purchases (21315).
Cost of Sales = Opening Stock + Purchases -Closing Stock
Cost of sales = Purchases
The amount could be correct cost of sales amount if the amounts of opening and
 Reconciliation Cash Disbursements
Cash Balance June 1 34983 Equipment purchased
Receipts 98783 Other assets purchased
Subtotal 133766 Payments on accounts payable
Cash purchases on merchandise
Disbursements 67106 Cash purchases on supplies
Cash Balance June 30 66660 Dividends
Wages paid
Utilities paid
Misc payments

Total disbursements

Liabilities & Owners’ Equity

Jun-01 Jun-30
Accounts Payable 8517 21315
Accrued wages payable 1974 2202
Bank notes payable 8385 29250
Retained earnings 221511 229446
Taxes payable 5700 7224
other Non-current liabilities 2451 2451
Capital Stock 390000 390000

Total Liabilities & Owners’ Equity 638538 681888

it customer-Account receivables June 1

ses - closing stock

payable=Account payable June 1

rsements
23400
408
8517
14715
1671
11700
5660
900
135

67106
 National Association of Accounts
Adjusted Income Statement, 2005
Revenues Reported
Member Dues 287500
Journal Subs. 31000
Publication Sales 11900
Grant 54000
Annual Profit 2004 3400
Total Revenue 387800

Expense
Printing 92400
Meeting Expense 49200
Meeting Advance 10800
Desktop 27000
Admin. Salaries 171500
Misc. 25000
Total 375900
Surplus(deficit) 11900
Adjustment Adjusted
32400 255100
2700 28300
11900
51300 2700
3400
86400 301400

11600 80800
49200
10800 0
27000 0
171500
25000
49400 326500
37000 25100
 LONE PINE CAFÉ (B)
Income Statement for Nov,2005 through March 30, 2006

Sales $ 44,350
Expenses
Salaries $ 23,150
Wages 5,480
Supplies 11,969
Utility 3,270
Rent 7,500
Depreciation 2,445
Operating Expense 595
Interest 540
Miscellaneous 255
Total -55204
Loss $ 10,584

2ans
Income Statement reflects that café is incurring loss during the period.

2) Income Statement reflects that café is incurring loss during the period.
1ans
Hynes and the investors can use the profit plan in following ways to manage the business:
To improve performances
To train the managers and employees
To evaluate performances and determine compensations
As a guide on spending
As a communication channel between various levels and units in an organization
As an early warning system

2ans Assets
Cash Patent Component Parts Equipment
120000
80000
-2500
-85000 85000
-25000
-212100 212100
30000
-30000
-500
-145000
-62000
-63000
-197000
598500
-8500
-20000
-5000

Total 78400 10000 15100 76500

Total Asset 270000

3ans
Hynes’ profit plan using transaction analysis. Components of the cost of manufacturing goods include direct materials and
The difference between operating and finance costs in the income statement is another accounting practice.
Dispensers of California Inc.
12month Profit Plan
Sales 598500
Cost of goods sold
Components 197000
Mfg payroll 145000
Other Mfg. 62000
Depreciation 8500 412500
Gross margin 186000
Selling general and Administration 63000
Patent 20000
 Redesign costs 25000
Incorporation costs 2500
Operating profit 75500
Interest 500
Profit before taxes 75000
Tax Income 22500
Net Income 52500

4ans
Balance Sheet
at the end of the first year of operation

Current Assets
Cash 78400
Raw material inventory 15100 93500
Noncurrent Assets
Equipment 76500
Patent 100000 176500
Total assets 270000

Equipment (Cost) 85000

Accumulated depreciati -8500
Equipment (net) 76500

Change in retained earning

Beginning retained e 0
Net income 2500
Dividends 5000
Ending retained earn 7500

Cash Reconcilation
Receipts Disbursement
New equity capital 80000
Incorporation 2500
Equipment 85000
Redesign 25000
Component parts 212100
Bank loan 30000
Bank loan 30000
Loan interest 500
Manufacturing payroll 145000
Other manufacturing 62000
SG&A 63000
Sales 598500
Dividend 5000
Total 708500 630100
 Cash Reconciliation
Receipt 708500
Disbursement 630100
Ending Balance 78400
5ans
Statement of Cash Flow
Collections from customers 598500
Payments to Suppliers -212100
Payments to employees -295000
Legal payments -2500
Interest -500
Operating cash flow 89400
Equipment purchases -85000
Investing cash flow -85000
Bank loan 30000
Repayment of bank loan -30000
Capital 80000
Dividends -5000
Financing cash flow 75000
Change in cash 78400
Beginning cash 0
Ending cash 78400
 Liability & Owners' Equity
Loan Payables Tax payables Owners' Equity
120000
80000
-2500

-25000

30000
-30000
-500
-145000
-62000
-63000
-197000
598500
-8500
-20000
-5000
22500 -22500
0 22500 247500

Total Liabilities+O.E 270000

s include direct materials and their conversion costs, including manufacturing equipment depreciation.
ounting practice.
Balance Sheet
he first year of operation

Noncurrent liabilities
Income tax payable 22500
Total liabilities
Owners' Equity
Capital 247500

Total liabilities 270000

isbursement