Critical Thinking Questions

I

Decision Case 1-2

Dave and Reba Guerrera saved all their married life to open a bed and breakfast (B&B) named Tres Amigos. They invested $100,000 of their own money, and the company issued common stock to them. The business then got a $100,000 bank loan for the $200,000 needed to get started. The company bought a rundown old Spanish colonial home in Tucson for $80,000. It cost another $50,000 to renovate. They found most of the furniture at antique shops and flea markets?for a total cost of $20,000. Kitchen equipment cost $10,000, and a computer system cost $2,000.

Prior to the grand opening, the banker requests a report on their activities thus far. The bank statement of Tres Amigos shows a cash balance of $38,000. Dave and Reba believe that the $38,000 represents net income for the period, and they feel pretty good about the results of their business. To better understand how well they are doing, they prepare the following income statement for presentation to the bank:

Requirements

Suppose you are the Guerreras? banker, and they have given you this income statement. Would you congratulate them on their net income? If so, explain why. If not, how would you advise them to measure the net income of the business? Does the amount of cash in the bank measure net income? Explain.

Prepare the balance sheet for Tres Amigos based on these data. There is no net income or loss yet.

Please see attachment for graph details!***************

Introductory Project 1-1 You are opening Quail Creek Pet Kennel. Your purpose is to earn a profit, and you organize as a corporation. Requirements 1. Make a detailed list of 10 factors you must consider to establish the business. 2. Identify 10 or more transactions that your business will undertake to open and operate the kennel. 3. Prepare the Quail Creek Pet Kennel income statement, statement of retained earnings, and balance sheet at the end of the first month of operations. Use made-up figures and include a complete heading for each financial statement. Date the balance sheet as of January 31, 20XX. 4. Discuss how you will evaluate the success of your business and how you will decide whether to continue its operation. Critical Thinking Questions I Decision Case 1-2 Dave and Reba Guerrera saved all their married life to open a bed and breakfast (B&B) named Tres Amigos. They invested $100,000 of their own money, and the company issued common stock to them. The business then got a $100,000 bank loan for the $200,000 needed to get started. The company bought a rundown old Spanish colonial home in Tucson for $80,000. It cost another $50,000 to renovate. They found most of the furniture at antique shops and flea marketsfor a total cost of $20,000. Kitchen equipment cost $10,000, and a computer system cost $2,000. Prior to the grand opening, the banker requests a report on their activities thus far. The bank statement of Tres Amigos shows a cash balance of $38,000. Dave and Reba believe that the $38,000 represents net income for the period, and they feel pretty good about the results of their business. To better understand how well they are doing, they prepare the following income statement for presentation to the bank: Requirements 1. Suppose you are the Guerreras' banker, and they have given you this income statement. Would you congratulate them on their net income? If so, explain why. If not, how would you advise them to measure the net income of the business? Does the amount of cash in the bank measure net income? Explain. 2. Prepare the balance sheet for Tres Amigos based on these data. There is no net income or loss yet