Decision-Making Across the Organization Kathy and James Mohr, local golf stars,

Question

Decision-Making Across the Organization Kathy and James Mohr, local golf stars, opened the Chip-Shot Driving Range Company on March 1, 2017. They invested $25,000 cash and received common stock in exchange for their investment. A caddy shack was constructed for cash at a cost of $8,000, and $800 was spent on golf balls and golf clubs. The Mohrs 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, Kathy and James received a dividend of $1,000. 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. Kathy and James 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 Mohrs 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 Mohrs 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 recognized in March?

Explanation / Answer

a) Mohr's have concluded that the business operated at a loss of $6100 by considering the value of investment $25000 less bank balance as on 31st March $18900 which indicates $6100 which is not valid as he does not consider remaining all expenses during the year.

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.