Note for the assignment:

Instructions: Prepare the necessary Income Statement forecasts and answer the two questions related to Buck's Coffee Company.

Hint: Net Income present scenario = $75,000.

A. Buck's Coffee Company(BCC) is a seller of Columbian coffee. BCC maintains a tight credit policy. However BCC does sell on open-account to some regular customers; and occasionally accepts new customers for sales on open-account. BCC manages all aspects of the resulting Accounts Receivable. Average experience for the past three years has been as follows: Total Cash Sales Sales on account Sales $350,000 $200,000 $150,000 Cost of Goods Sold 210,000 Bad Debt Expense 4,000 Additional Operating Expenses 61,000 Buck Anderson, the manager and sole shareholder, is considering changing the credit policy by accepting customers' credit cards (VISA & MasterCard, for example). Buck expects BCC to sell 10% more coffee by easing credit restrictions. To simplify analysis, Buck assumes that ALL sales will be via credit card. Also Buck believes that switching to credit cards will save the business $2,000 on Additional Operating Expenses. However credit card companies charge BCC a 2% transaction fee on credit-card sales. Instructions (assume no income taxes): 1. Would you advise BCC contract with credit card companies and start accepting plastic? (to answer the question, prepare income statements under the present scenario, then do so under the credit card plan, and then compare Net Income projections)(show Bad Debt Expense and Credit Card Expense as a separate line- items on your income statement forecasts) 2. Buck has learned that credit card companies are planning to triple their fees, does your advice change