A Company Expects Its Three Departments to Yield the Following

question 33

Multiple Choice

A company expects its three departments to yield the following income for next year: $\begin{array}{lrrr}&\text { Dept. Q }&\text { Dept. R } &\text { Dept. S } \\\text { Sales } &\$ 6,000&\$ 7,000&\$ 8,000\\\text { Expenses }\\\text { Avoidable } & 2,000 & 3,000 & 4,000 \\\text { Unavoidable } & 1,500 & 2,500 & 4,500 \\\hline \text { Total expenses } & 3,500 & 5,500 & 8,500 \\\hline \text { Net income(loss) } & \underline {\$ 2,500} & \underline { \$ 1,500} & \underline {\$(500) }\end{array}$ Compute the change to the company's total net income if Dept.S is eliminated.

• A)$500 increase
• B)$500 decrease
• C)$4,000 increase
• D)$4,000 decrease
• E)$3,500 decrease

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Definitions:

Capital Lease

A lease agreement that is considered a purchase by the lessee because of its terms, such as a bargain purchase option, which allow for the transfer of ownership over the asset's life.

Residual Value

The estimated value of an asset at the end of its useful life.

Capital Lease

A lease classified by lessees as an asset purchase, indicating that the lessee effectively has control over the asset during the lease term.

Interest Revenue

Income earned from deposit accounts or investments through the interest paid by the borrower to the lender.