Use the Information Below to Answer the Following Question(s)

question 232

Multiple Choice

Use the information below to answer the following question(s) :
Westfall Watches has two product lines: Luxury watches and Sporty watches. Income statement data for the most recent year follow:

-Assuming fixed costs remain unchanged, how would discontinuing the Sporty line affect operating income?

• A) Increase in total operating income of $49,000
• B) Increase in total operating income of $142,000
• C) Decrease in total operating income of $10,000
• D) Decrease in total operating income of $108,000

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Definitions:

Contract Rate

The agreed-upon interest rate specified in a contract, often relating to loans or bond issues.

Effective Rate

The interest rate on a loan or financial product, rephrased to reflect the actual annual cost of the product over its repayment term.

Bond Discount

The difference between the bond's face value and its selling price when it is sold for less than its face value, representing the additional interest expense to the issuer.

Unamortized Discount

The portion of a bond discount that has not yet been amortized (gradually written off) over the period of the bond's life.