Dave and Reba Guerrera saved all their married life to open a bed and breakfast (B&B) named
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Prior to the grand opening, the banker requests a report on their activities thus far. Tres Amigos bank statement shows a cash balance of $38,000. Dave and Reba believe that the $38,000 represents net income for the period, and they feel pretty good about the results of their business. To better understand how well they are doing, they prepare the following income statement for presentation to the bank:
1. Suppose you are the Guerreras banker, and they have given you this income statement. Would you congratulate them on their net income? If so, explain why. If not, how would you advise them to measure the net income of the business? Does the amount of cash in the bank measure net income? Explain. (Challenge)
2. Prepare Tres Amigos balance sheet from their data. There are no retained earningsyet.
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Related Book For
Financial and Managerial Accounting
ISBN: 978-0132497978
3rd Edition
Authors: Horngren, Harrison, Oliver
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