Diane Maynard was grateful for the balance sheets that her friend prepared [see Case 2-1, Maynard Company (A)]. In going over the numbers, she remarked. "It's sort of surprising that cash increased by $31,677, but net income was only $19,635. Why was that?"
Her friend replied, "A partial answer to that question is to look at an income statement for June. I think I can find the data I need to prepare one for you."
In addition to the data given in the (A) case, her friend found a record of cash receipts and disbursements, which is summarized in Exhibit 1. She also learned that all accounts payable were to vendors for purchase of merchandise inventory and that cost of sales was $39,345 in June.
1. Prepare an income statement for June in proper format. Explain the derivation of each item on this statement, including cost of sales.
2. Explain why the change in the cash balance was greater than the net income.
3. Explain why the following amounts are incorrect cost of sales amounts for June:
(a) $14,715
(b) $36,030
Under what circumstances would these amounts be correct cost of sales amounts?

EXHIBIT 1 Cash Receipts and Disbursements Month of June Cash Receipts Cash Disbursements $23,400 408 8,517 14.715 1,671 11,700 5,660 900 135 $67,106 $44,420 21,798 11,700 20,865 $98,783 Equipment purchased Other assets purchased Payments on accounts payable Cash purchases of merchandise Cash purchase of supplies Dividends Wages paid Utilities paid Miscellaneous payments Cash sales Credit customers Diane Maynard Bank loan Total receipts Total disbursements Reconciliation: Cash balance, June 1 Receipts 34,983 98,783 5133,766 67.106 S 66,660 Subtotal Disbursements Cash balance, June 30