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Sales discounts Your sister operates Harbor Ready Parts Company, an online boat parts distributorship that is in its third year of operation. The income statement is shown lx-low and was recently prepared for the year ended October 31, 20Y6. Your sister is considering a proposal to increase net income by offering sales discounts of 2/15, n/30 and by shipping all merchandise FOB shipping point. Currently, no sales discounts are allowed and merchandise is shipped FOB destination. It is estimated that these credit terms will increase sales by 15%. The ratio of the cost of goods sold to sales is expected to be 65%. All selling and administrative expenses are expected to remain unchanged, except for store supplies, miscellaneous selling, office supplies, and miscellaneous administrative expenses, which are expected to increase proportionately with increased sales. The amounts of these preceding items for the year ended October 31. 20Y6, were as follows: The other revenue and other expense items will remain unchanged. The shipment of all merchandise FOB shipping point will eliminate all delivery expenses, which for the year ended October 31, 20Y6, were $28,000. Based on the projected income statement in part (1), would you recommend implementation of the proposed changes?

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
Publisher: Cengage Learning
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
Publisher: Cengage Learning
ISBN: 9781305961883
Chapter 4, Problem 4.4.2C
Textbook Problem
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Sales discounts
Your sister operates Harbor Ready Parts Company, an online boat parts distributorship that is in its third year of operation. The income statement is shown lx-low and was recently prepared for the year ended October 31, 20Y6.

Chapter 4, Problem 4.4.2C, Sales discounts Your sister operates Harbor Ready Parts Company, an online boat parts , example  1
Your sister is considering a proposal to increase net income by offering sales discounts of 2/15, n/30 and by shipping all merchandise FOB shipping point. Currently, no sales discounts are allowed and merchandise is shipped FOB destination. It is estimated that these credit terms will increase sales by 15%. The ratio of the cost of goods sold to sales is expected to be 65%. All selling and administrative expenses are expected to remain unchanged, except for store supplies, miscellaneous selling, office supplies, and miscellaneous administrative expenses, which are expected to increase proportionately with increased sales. The amounts of these preceding items for the year ended October 31. 20Y6, were as follows:

Chapter 4, Problem 4.4.2C, Sales discounts Your sister operates Harbor Ready Parts Company, an online boat parts , example  2
The other revenue and other expense items will remain unchanged. The shipment of all merchandise FOB shipping point will eliminate all delivery expenses, which for the year ended October 31, 20Y6, were $28,000.

Based on the projected income statement in part (1), would you recommend implementation of the proposed changes?

To determine

Concept Introduction:

The income statement is a part of the financial statements of a company which provides a true and fair view of the working of the company's earnings and growth. It gives the net income or profit after adjustments of all expenses.

Sales discount is a way to attract more demand and early payments in the operating cycle.

To indicate:

Suggestions on the proposed changes.

Explanation of Solution

H.R. Parts Company's projected Income Statement for the year ended October 31,20Y7 provides a net income of $290,000

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Chapter 4 Solutions

Survey of Accounting (Accounting I)
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