Kathy and James Mohr, local golf stars, opened the Chip-Shot Driving Range Company on March 1, 2020.

Question:

Kathy and James Mohr, local golf stars, opened the Chip-Shot Driving Range Company on March 1, 2020. 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?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Financial and Managerial Accounting

ISBN: 978-1119392132

3rd edition

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

Question Posted: