ACCT 100 : Introduction to Financial Accounting
San Francisco State University (SFSU)
Financial Accounting
Jerry J. Weygandt
Decision Making Across The Organization
BYP 1-4 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
(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 a t a net income of $2,450? (Hint: Prepare a balance sheet at March 31.) Was the 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?
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