Question

Suppose your firm receives a $4.62 million order on the last day of the year. You fill the order with $1.95 million also issue a bill for the customer to pay the remaining balance of $3.40 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 b. Earnings c. Receivables d. Inventory e. Cash a. Revenues Revenues willby million. (Select from the drop-down menu and round to two decimal places.) increase decrease

Answer 1

a. Revenue will increase by $4.62 million , cash payment of $1.22 million plus the bill amounting $3.40 million has been issued, both will be considered as total revenue

b. Earnings will increase by $2.67 million , Earnings is total revenue(4.62 million) minus cost (inventory of $1.95 million), therefore earnings are $2.67 million

c. Receivables increase by $3.40 million , Ending balance of Receivables at end of year is $3.40 million

d. Inventory decrease by $1.95 million , Total cost of inventory used for the order is $1.95 million

e. Cash increase by $1.22 million , Customer paid the cash amounting $1.22 million for filling the order of $1.95 by inventory