William Murray achieved one of his life long dreams by

opening
William Murray achieved one of his life-long dreams by opening his own business, The Caddie
Shack Driving Range, on May 1, 2012. He invested $20,000 of his own savings in the business.
He paid $6,000 cash to have a small building constructed to house the operations and spent
$800 on golf clubs, golf balls, and yardage signs. Murray leased 4 acres of land at a cost of
$1,000 per month. (He paid the first month’s rent in cash.) During the first month, advertising
costs totaled $750, of which $150 was unpaid at the end of the month. Murray paid his three
nephews $400 for retrieving golf balls. He deposited in the company’s bank account all
revenues from customers ($4,700). On May 15, Murray withdrew $800 in cash for personal use.
On May 31, the company received a utility bill for $100 but did not immediately pay it. On May
31, the balance in the company bank account was $15,100. Murray is feeling pretty good about
results for the first month, but his estimate of profitability ranges from a loss of $4,900 to a profit
of $1,650.AccountingPrepare a balance sheet at May 31, 2012. Murray appropriately records
any depreciation expense on a quarterly basis. How could Murray have determined that the
business operated at a profit of $1,650? How could Murray conclude that the business operated
at a loss of $4,900?AnalysisAssume Murray has asked you to become a partner in his business.
Under the partnership agreement, after paying him $10,000, you would share equally in all
future profits. Which of the two income measures above would be more useful in deciding
whether to become a partner? Explain.PrinciplesWhat is income according to GAAP? What
concepts do the differences in the three income measures for The Caddie Shack Driving Range
illustrate?View Solution:
William Murray achieved one of his life long dreams by opening
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