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Table 15.7 Fizzy Animators, Inc. Currently Makes All Sales on Credit and Credit

question 164

Multiple Choice

Table 15.7
Fizzy Animators, Inc. currently makes all sales on credit and offers no cash discount. The firm is considering a 3 percent cash discount for payment within 10 days. The firm's current average collection period is 90 days, sales are 400 films per year, selling price is $25,000 per film, variable cost per film is $18,750, and the average cost per film is $21,000. The firm expects that the change in credit terms will result in a minor increase in sales of 10 films per year, that 75 percent of the sales will take the discount, and the average collection period will drop to 30 days. The firm's bad debt expense is expected to become negligible under the proposed plan. The bad debt expense is currently 0.5 percent of sales. The firm's required return on equal-risk investments is 20 percent. (Assume a 360-day year.)
-What is the net result of increasing the cash discount? (See Table 15.7)

Comprehend the calculation of unrealized gains or losses on joint venture investments.

Grasp the principles of depreciation for accounting and tax purposes, including the concept of temporary differences and their impact on deferred tax assets or liabilities.

Identify reportable segments as per revenue, profit, and asset tests and the criteria for operating segment under GAAP.

Analyze the financial impact of joint ventures on the income statements and balance sheets of the investing companies, including equity method accounting.

Definitions:

Outplacement

Assistance provided by an organization to former employees transitioning to new jobs, often including career counseling, job search assistance, and training.

Inplacement

An organizational practice focusing on training and developing employees within the company to prepare them for higher responsibilities.

Career Development

The ongoing process of managing one's work experience, learning, and skills to pursue preferred job opportunities over time.

Mentoring

A developmental partnership through which one person shares knowledge, skills, information, and perspective to foster the personal and professional growth of someone else.