Mary and Jack Gray, local golf stars, opened the Chip-Shot Driving Range on March 1,
2012, by investing $25,000 of their cash in the business. The Grays leased five acres of
land at a cost of $1,000 per month and paid the first month’s rent. During the first month,
advertising costs totaled $750, of which $150 was unpaid at March 31. All revenues from
customers were deposited in the company’s bank account. On March 15, Maryand Jack
withdrew a total of $1,000 in cash for personal living expenses. A $100 utility bill was
Mary and Jack Gray, local golf stars, opened the Chip-Shot Driving Range on
March 1, 2008, by investing $25,000 of their cash savings in the business. A caddy shack was
constructed for cash at a cost of $8,000, and $800 was spent on golf balls and golf clubs. The
Grays leased five acres of land at a cost of $1,000 per month and paid the first month’s rent.
During the first month, advertising costs totaled $750, of which $150 was unpaid at March
31, and $400 was paid to members of the high-school golf team for retrieving golf balls. All
revenues from customers were deposited in the company’s bank account. On March 15, Mary
and Jack withdrew a total of $1,000 in cash for personal living expenses. A $100 utility bill
was received on March 31 but was not paid. On March 31, the balance in the company’s bank
account was $18,900.
Mary and Jack thought they had a pretty good first month of operations. But, their estimates
of profitability ranged from a loss of $6,100 to net income of $2,450.
Instructions
With the class divided into groups, answer the following.
(a) How could the Grays have concluded that the business operated at a loss of $6,100? Was this
a valid basis on which to determine net income?
(b) How could the Grays have concluded that the business operated at a net income of $2,450?
(Hint: Prepare a balance sheet at March 31.) Was this a valid basis on which to determine net
income?
(c) Without preparing an income statement, determine the actual net income for March.
(d) What was the revenue earned in March?
HELP, how would I begin to solve this?
1 answer