Question

Christine and Nick Par, local golf pros, opened the Hole-in-One Driving Range Company on March 1, 2018. They invested $35,000 in cash and received common stock in the Company in exchange for their investment. They also borrowed $20,000 from a local bank on March 1st, which is due and payable on December 31, 2020. Interest on the loan accrues at a rate of 6% and is payable on the 30^th of each month. A small range building was constructed for a cost of $18,500, and the contractor was paid in full in March. The building is estimated to last for ten years, with no salvage value at the end of its useful life. Additionally, $3,800 was spent on an initial supply of golf balls and golf clubs (which are expected to last for two years with no salvage value). The Pars also signed a one year-lease (with two one-year renewal options) for five acres of land at a cost of $1,000 per month, and paid the March rent on March 15^th. During the first month, advertising costs in the totaled $750, of which $150 was unpaid as of March 31^st. During March, the Company paid $400 to members of the local high school golf team for retrieving golf balls from the range. At the beginning of the month, the Company paid their first six months of insurance coverage to the Eagle Insurance Co. in the amount of $6,000.

All revenues from customers during the month were deposited into the Company’s bank account. The Company had $15,300 in cash sales during March, and $4,225 in credit card sales. The bank charges a 2% processing fee for all credit card transactions.

On March 31^st, the Pars paid themselves a dividend from the Company of $900. Additionally, a $250 utility bill for March was received on March 31^st but not paid until April.

The Pars believe that the business did well in its first month of operations. However, they need some assistance in preparing financial statements for the month of March.

Requirements:

1. What was the net income/net loss for March? Prepare an income statement for the month of March. Don’t forget to make any necessary “adjusting entries” at the end of March. You can assume that the company uses the straight line method of depreciation where applicable.

Answer 1