This question is intended to emphasize early in the course that shareholder’s equity does not necessarily reflect

what the entity is worth. Time permitting, the instructor can have students estimate the cash proceeds of piecemeal
sale of the assets by a liquidation company, which, net of liabilities, will certainly be less than $619,446. Then the
value of the company as a going concern can be discussed; if June’s $19,635 net income is typical, the firm would
be worth more than $619,446 as a going concern. Capitalizing June’s net income on an annual basis ($19,635 x
12) at 10 times earning gives the company a value in excess of $2 million. The company’s return on equity is very
high. On an annual basis it may be as high as 32%. This figure is 12 months’ income ($19,635 x 12) divided by
projected year-end equity ($619,446 + $19,635 x 6). This is not a typical business. It is better.

MAYNARD COMPANY
BALANCE SHEETS AS OF JUNE 1 AND JUNE 30
Assets
Current Assets: As of June I As of June 30:
Cash $ 34,983 $ 66,660
.....................................................................................
Accounts 21,798 26,505
receivable
.....................................................................................
Note 11,700 0
receivable
.....................................................................................
Merchandise 29,835 26,520
inventory
.....................................................................................
Supplies on 5,559 6,630
hand
.....................................................................................
Prepaid 3,150 2,826
insurance
.....................................................................................
Total current $107,025 $129,141
assets
.................................................................................
Noncurrent assets:
Land 89,700 89,700
.....................................................................................
Building 585,000 585,000
.....................................................................................
Less: Accumulated (156,000 ) 429,000 ( 157,950 ) 427,050
depreciation
.................................................................................
Equipment 13,260 36,660
.....................................................................................
Less: Accumulated ( 5,304 ) 7,956 ( 5,928 ) 30,732
depreciation
.................................................................................
Other noncurrent 4,857 5,265
assets
.....................................................................................
Total noncurrent 531,513 552,747
assets
.................................................................................
Total $638,538 $681,888
assets
..........................................................................
 Liabilities and Shareholders’ Equity
Current liabilities:
Accounts $8,517 $ 21,315
payable
.................................................................................
Bank notes 8,385 29,250
payable
.................................................................................
Taxes 5,700 7,224
payable
.................................................................................
Accrued wages 1,974 2,202
payable
.................................................................................
Total current $ 24,576 $ 59,991
liabilities
............................................................................
Other noncurrent 2,451 2,451
liabilities
.................................................................................
Total 27,027 62,442
liabilities
............................................................................
Shareholders’ Equity:
Capital 390,000 390,000
stock
.................................................................................
Retained 221,511 229,446
earnings
.................................................................................
Total shareholder’s 611,511 619,446
equity
............................................................................
Total liabilities and shareholders’ $638,538 $681,888
equity
.......................................................................