Suzi Nomro operates Watercraft Supply Company, an online boat parts distributorship that is in its third year of operation. The following income statement was prepared for the year ended October 31, 2019. Watercraft Supply Company Income Statement For the Year Ended October 31, 2019 Revenues: Sales .........................................................$1,350,000 Interest ......................................................15,000 Total revenues .............................................$1,365,000 Expenses: Cost of merchandise sold ......................................$810,000 Selling expenses ..............................................140,000 Administrative expenses .......................................90,000 Interest expense...............................................4,000 Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,044,000 Net income .......................................................$321,000 Suzi 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 dis-counts are allowed and merchandise is shipped FOB destination. It is estimated that the new terms will increase sales by 10%. The ratio of the cost of merchandise sold to sales is expected to be 60%. All selling and administrative expenses are expected to remain unchanged, except for store supplies and miscellaneous selling expenses, which are ex-pected to increase proportionately with increased sales. The amounts of these items for the year ended October 31, 2019, were as follows: Store supplies expense $12,000 Miscellaneous selling expenses 6,000 The interest revenue and 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, 2019, were $12,000. 1.  Prepare a budgeted Income Statement for 2020, taking into account all of the changes and expectations being made.

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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Suzi Nomro operates Watercraft Supply Company, an online boat parts distributorship that is in its third year of operation. The following income statement was prepared for the year ended October 31, 2019.

Watercraft Supply Company

Income Statement

For the Year Ended October 31, 2019

Revenues:

Sales .........................................................$1,350,000

Interest ......................................................15,000

Total revenues .............................................$1,365,000

Expenses:

Cost of merchandise sold ......................................$810,000

Selling expenses ..............................................140,000

Administrative expenses .......................................90,000

Interest expense...............................................4,000

Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,044,000

Net income .......................................................$321,000

Suzi 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 dis-counts are allowed and merchandise is shipped FOB destination. It is estimated that the new terms will increase sales by 10%. The ratio of the cost of merchandise sold to sales is expected to be 60%. All selling and administrative expenses are expected to remain unchanged, except for store supplies and miscellaneous selling expenses, which are ex-pected to increase proportionately with increased sales. The amounts of these items for the year ended October 31, 2019, were as follows:

Store supplies expense $12,000

Miscellaneous selling expenses 6,000

The interest revenue and 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, 2019, were $12,000.

1.  Prepare a budgeted Income Statement for 2020, taking into account all of the changes and expectations being made.

2.  Identify and describe the pros and cons of the proposed changes.  What concerns should the company have?

 

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