Problem: Decision-Making Across the Organization
Anya and Nick Ramon, local golf stars, opened the Chip-Shot Driving Range on March 1, 2017, by investing $25,000 of their cash savings in the business. A caddy shack was constructed for cash at a cost of $8,000, and $800 was spent on golf balls and golf clubs. The Ramon's 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 $100 was unpaid at March 31, and $500 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, Anya and Nick withdrew a total of $ 1,000 in cash for personal living expenses. A $120 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. Anya and Nick 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, 480.
Instructions: With the class divided into groups, answer the following.
a. How could the Ramon's 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 Ramon's have concluded that the business operated at a net income of $2 480? 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?