Question

Suppose your firm receives a $5.00 million order on the last day of the year. You fill the order with $2.00 million worth of inventory. The customer picks up the entire order the same day and pays $1.00 million up front in cash; you also issue a bill for the customer to pay the remaining balance of $4.00 million within 40 days. Suppose your firm's tax rate is 0% (i.e., ignore taxes). Determine the consequences of this transaction for each of the following: a. Revenues d. Inventory b. Earnings e. Cash c. Receivables a. Revenues Revenues will increase by $5 million. (Select from the drop-down menu and round to two decimal places.) b. Earnings Earnings will increase by $ 3 million. (Select from the drop-down menu and round to two decimal places.) c. Receivables Receivables will increase by $ million. (Select from the drop-down menu and round to two decimal places.) d. Inventory Inventory will decrease by $ million. (Select from the drop-down menu and round to two decimal places.) e. Cash Cash will increase by $ million. (Select from the drop-down menu and round to two decimal places.)

Answer 1

a) Revenue received on accepting the order by cutomer = $5 millions

_Means Revenue will increase by $ 5 Millions

b) Earnigs means Revenue - cost of inventory;

so, earnings = $5million - $2millions = $3 milions

_Earings will increase by $3millions

c) For such order customer paid $1million outoff $5million, so balance will be accounts rececivables

_Receivables will increase by $4 millions

d) Inventory used is $2 millions

_Inventory will decreases by $2millions

e) Cash received from customer regard to this order is $1million

_cash increases by $1 million