Your sister operates Callender Parts Company, a mail-order boat parts distributorship that is in its third year of operation. The following income statement was recently prepared for the year ended March 31, 2006:

Your sister is considering a proposal to increase net income by offering sales discounts of 2/15, n/30, and by shipping all merchandise FOB shipping point. Currently, no sales discounts are allowed and merchandise is shipped FOB destination. It is estimated that these credit terms will increase net sales by 10%. The ratio of the cost of merchandise sold to net sales is expected to be 70%. All selling and administrative expenses are expected to remain unchanged, except for store supplies, miscellaneous selling, office supplies, and miscellaneous administrative expenses, which are expected to increase proportionately with increased net sales. The amounts of these preceding items for the year ended March 31, 2006, were as follows:
Store supplies expense .......... $8,000
Miscellaneous selling expense ....... 3,200
Office supplies expense ......... 1,600
Miscellaneous administrative expense .... 2,880
The other income and other expense items will remain unchanged. The shipment of all merchandise FOB shipping point will eliminate all transportation out expenses, which for the year ended March 31, 2006, were $32,240.
1. Prepare a projected single-step income statement for the year ending March 31, 2007, based on the proposal. Assume all sales are collected within the discount period.
2. a. Based on the projected income statement in (1), would you recommend the implementation of the proposed changes?
b. Describe any possible concerns you may have related to the proposed changes described in(1).

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Callender Parts Company Income Statement For the Year Ended March 31, 2006 Revenues: Net sales Interest revenue $960,000 8,000 968,000 Total revenues Expenses Cost of merchandise sold Selling expenses Administrative expenses Interest expense 672,000 105,600 54,400 16.000 Total expenses 848,000 120,000 Net income