CT1.4Anya and Nick Ramon, local golf stars, opened the ChipShot 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 highschool 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 2,480? (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 for March.

d.What was the revenue recognized in March?