owners of Bay Watch | My Assignment Tutor

Part 1 The owners of Bay Watch invested $ 150,000 of their own money. The business then got a $ 100,000 long-term bank loan for the $250,000 needed to get started. The business bought a run-down old colonial building and land to be used for office location for $90, 000. It cost another $70,000 to renovate. They found most of the furniture at antique shops and flea markets, total cost was $27,000. Office equipment cost $ 15,000 and a computer cost $2,500. Prior to the grand opening, the banker requests a report on their activities thus far. Bay Watch’s bank statement shows cash balance of $45,500. The owners believe that the $45,500 represents profit for the period and they feel pretty good about the results of their business. Without consultation from an accountant, the owners prepared the following income statement by themselves for presentation to the bank: Bay Watch Income Statement for the six months ended 30 June 2008Revenues:Investments by owner$150,000Long-term bank loan100,000Total revenues$250,000Expenses:Land and building$ 160,000Furniture27,000Office equipment15,000Computer2,500Total expenses$204,500Profit$45,500 Questions 1 and 2 are based on Part 1 information Question 1 Suppose you are the Bay Watch’s banker and they have given youthisincomestatement, would you congratulate them on their profit? If so, explain why. If not, how would you advise them to measure the profit of the business (provide 3 advice)? Does the amount of cash in the bank measure profit (provide 2 reasons)? (10marks) Question 2 Prepare Bay Watch’s balance sheet from the data provided above (thereisnoprofit or loss yet). (10marks)


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