Patsy and Perry Ross, local golf-stars, opened the Long-Shot Driving Range on May 1 st , 2005, by investing $10,000 of their cash savings in the business. A caddy shack was constructed for cash at a cost of $4,000, and $1,800 was spent on golf balls and golf clubs. The Rosses 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 totalled $750, of which $150 was unpaid on May 31 st . Members of the high school golf team were paid $400 for retrieving golf balls. All fees from customers were deposited in the company's bank account. On May 15 th , Patsy and Perry withdrew $800 in cash for personal living expenses. A $100 utility bill was received on May 31 st , but it was not paid. On May 31 st , the balance in the company's bank account was $7,550. Patsy and Perry weren't sure how they did in their first month of operations. Their estimates of profitability ranged from a loss of $2,450 to net income of $3,100.

Instructions:

Answer the following:

a) How could the Rosses have concluded that the business operated at a loss of $2,450? Was this a valid way to determine net income?

b) How could the Rosses have concluded that the business operated at a net income of $3,100? (Hint: Prepare a balance sheet at May 31 st .) Was this a valid way to determine net income?

c) Without preparing an income statement, determine the actual net income for May.