Mary and Jack Gray, local golf stars, opened the Chip-Shot Driving Range Company

Question

Mary and Jack Gray, local golf stars, opened the Chip-Shot Driving Range Company on March 1, 2008. 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 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 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.

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?

Explanation / Answer

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