Consider the Following Portion of a Segmented Income Statement for the Year

question 70

Multiple Choice

Consider the following portion of a segmented income statement for the year just ended. Assume that the fixed expenses of Division X include $30,000 of direct expenses and that the discontinuance of the department will not affect the sales of the other departments nor reduce the common expenses. What would be the effect on the firm's operating income if Division X were discontinued?

• A) increase $10,000
• B) decrease $40,000
• C) decrease $100,000
• D) decrease $10,000

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Definitions:

Maturity

The final payment date of a loan or other financial instrument, at which point the principal (and all remaining interest) is due to be paid.

Annual Coupon

The interest payment made to bondholders once a year, based on the bond's face value.

Yield To Maturity

The complete return expected from holding a bond until it reaches its maturity.

Market Price

The price for an asset or service in the market at the present time.