Case 3.1:1) Income Statement for June Month as below:

a) Sales Revenue: It will include both cash and credit sales. As per the receipt of June month cash sales was $44,420 and accounts receivable (credit sale) was $26,505(June 30 a/c receivable) + $21,798 (cash received from a/c receivable) – $21,798 (June 1 a/c receivable) = $70,925

b) Cost of Goods sold: is (inventory Opening – inventory closing + inventory purchased). Here it comes as $29,835 (opening) – $265,520 (closing) + $14,715(inventory purchased by cash) + ($21,315 – $8,517 + $8,517) (inventory purchased on account) = $39,345

c) Gross Margin: is the difference of sales revenues and cost of the good sold.d) Supplies Expenses: is (supplies opening – supplies closing + supplies

purchased). Here it is $5,559 (opening) – $6,630 (closing) + $1,671(supplies purchased by cash) = $600. There were no supplies purchased on account.

Maynard CompanyIncome StatementFor Month of June

Particulars Total($) Sales Revenue 70925Cost of Goods Sold 39345Gross Margin 31580Supplies Expenses 600Wage Expenses 5888Utilities Expenses 900Depreciation Expenses(building and equipment) 2574Insurance Expenses 324Miscellaneous Expenses 135Income before income taxes(IBIT) 21159Income tax expenses 1524Net Income 19635

e) Wage Expenses: will be the difference between accrued wages payable at EOM and SOM + wages paid during this month. It comes as $2,202(accrued at EOM) - $1,974 (accrued at SOM) + $5,660 (wages paid during the month) = $5,888. There were no prepaid wage expenses otherwise we would have to subtract that amount.

f) Utilities Expense: As per the case receipts $900 was expense for utilities. There is no opening and closing balance as well as credit purchase of utilities.

g) Depreciation Expenses: It includes both building and equipment depreciation expenses. It was calculated on the basis of accumulated depreciation difference at EOM and SOM.

h) Insurance Expenses: Difference of prepaid insurance at SOM and EOM will result in the insurance expenses for month June.

i) Miscellaneous Expenses: are shown in the cash receipt for month of June so will come into the income statement as is.

j) Income before income taxes (IBIT): is calculated by taking the difference of all the operating expenses from gross margin.

k) Net Profit: is the difference between the IBIT and income taxes paid.

2) Explanation of the difference between cash balance and net income: Net income for a particular period is the difference between the sales revenue and (cost of the good sold + operating expenses + income taxes). It does not matter if business got the cash for revenues or did not pay for the purchases/operating expenses/income taxes during the period when these were realized. These unpaid expenses/accrued wages/ accounts payable and accounts receivable will be shown in the balance sheet as per the nature but income sheet.For example in June month Maynard Company got the $20,865 cash from bank loan but it will not be shown in the income sheet but balance sheet as liability. Same goes for the other transactions also resulting in the difference between net income and increased cash during June period.

3) Incorrect amount of cost of goods sold:a) $14,175 – this was the just cash purchase of merchandise but the cost of

sales is (inventory Opening – inventory closing + inventory purchased both cash and on account). So we will not just take $14,175 as cost of sale.

b) $36,030 – this was just the inventory purchase both on cash and credit but did not include the difference of inventory opening and closing so we can not take it as cost of sales either.