Reference no: EM132280246

Question - 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 £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?