Problem:
Mike, an accounting professor at the University of Washington supplements his income by selling cappuccino on campus to students and other faculty members when he is not teaching, doing research, creating curriculum, or attending committee meetings. He sells iced cappuccino in hot weather. Mike has $650 invested in his cappuccino business, which consists of $100 of miscellaneous cash that he keeps in his cash drawer, the cappuccino machine, and the ice shaver.
Since there is a popular football game on the Friday of the last week of August, Mike anticipates that Friday will be a busy day. He buys an unusually large amount of materials that goes into making and selling the cappuccino for $870 and increases the cash in his cash drawer to $200 to make change. His supplier, Stewart Enterprises, allows him to charge $348 of his total purchases, and he pays cash for the rest. Friday morning, he pays $12 for several bags of ice, and $10 for cups.
With temperatures in the 90s, Mike sells three-quarters of his purchase for $910 in cash. At the end of the day, he returns home with his unsold cappuccino materials (except for the unsold ice which melted) with plans to replenish his inventory, pay his supplier bill, and obtain more ice and cups for finals week.
Required
Question 1: Prepare an income statement to reflect the results of operations for Mike's Friday business. List any items that you found difficult to measure.
Question 2: Evaluate Mike's relative success in selling cappuccino.