Question

Please help me to understand the following

Decision-Making Across the Organization CT1.4 Anya and Nick Ramon, local golf stars, opened the Chip-Shot Driving Range Ltd. on March 1, 2020, investing £25,000 of their cash savings in the business in exchange for ordinary shares. A caddy shack was constructed for cash at a cost of £8,000, and £800 was spent on golf balls and golf clubs. The company 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, the company paid a total of £1,000 in dividends. 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 Ramons have concluded that the company operated at a loss of £6,100? Was this a valid basis on which to determine net income? b. How could the Ramons have concluded that the company operated at a net income of 62.480? (Hint: Prepare a statement of financial position 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 d. What was the revenue recognized in March?

Answer 1

Answers:

a) Ramons basis for conclusion that the company is operated at loss is the difference between opening cash and closing cash:

$=25000-18900$

= 6100.

its not a valid basis to determine net income

b) Financial position = 18,900+800

sorry, i could not finalize the financial position.

its not a valid basis

c) Net Income = 11950 -1000-750-500-120

=9,580

d) Revenue in march = (25000+8000+800+1000+500+650+1000) - 18,900

=11,950