Northern Stores is a retailer in the upper Midwest. The most recent monthly income statement for Northern Stores is given below: Total Store I Store II Sales $2,100,000 $1,300,000 $800,000 Variable expenses 1,260,000 882,000 378,000 Contribution margin 840,000 418,000 422,000 Traceable fixed expenses 420,000 231,000 189,000 Segment margin 420,000 187,000 233,000 Common fixed expenses 350,000 210,000 140,000 Net operating income $70,000 ($23,000) $93,000 Northern is considering closing Store I. If Store I is closed, one-fourth of its traceable fixed expenses would continue. Also, the closing of Store I would result in a 20% decrease in sales in Store II. Northern allocates common fixed expenses on the basis of sales dollars and none of these costs would be saved if a store were shut down. Required: Compute the overall increase or decrease in the net operating income of Northern Stores if Store I is closed. (Loss is negative number -; increase is positive number)
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Northern Stores is a retailer in the upper Midwest. The most recent monthly income statement for Northern Stores is given below:
|
|
Total |
Store I |
Store II |
|
Sales |
$2,100,000 |
$1,300,000 |
$800,000 |
|
Variable expenses |
1,260,000 |
882,000 |
378,000 |
|
Contribution margin |
840,000 |
418,000 |
422,000 |
|
Traceable fixed expenses |
420,000 |
231,000 |
189,000 |
|
Segment margin |
420,000 |
187,000 |
233,000 |
|
Common fixed expenses |
350,000 |
210,000 |
140,000 |
|
Net operating income |
$70,000 |
($23,000) |
$93,000 |
Northern is considering closing Store I. If Store I is closed, one-fourth of its traceable fixed expenses would continue. Also, the closing of Store I would result in a 20% decrease in sales in Store II. Northern allocates common fixed expenses on the basis of sales dollars and none of these costs would be saved if a store were shut down.
Required:
Compute the overall increase or decrease in the net operating income of Northern Stores if Store I is closed.
(Loss is negative number -; increase is positive number)
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