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14 February, 02:29

M8-1 Evaluating the Decision to Extend Credit [LO 8-1 Nutty Productions Inc. generated service revenue of $48,000 and income from operations of $19,000. The company estimates that, had it extended credit it would have instead generated $87,000 of service revenue, but it would have incurred $34,000 of additional expenses for wages and bad debts. 1-a. Using these estimates, calculate the amount by which Income from Operations would increase (decrease) Income from Operations by 1-b. Should the company extend credit? Yes No

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  1. 14 February, 02:45
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    Yes

    Explanation:

    In this question, we have to compare the total income based on credit extended The computation is shown below:

    If credit is not extended, then the total income would be

    = Service revenue + income from operations

    = $48,000 + $19,000

    = $67,000

    If credit is extended, then the total income would be

    = Service revenue + income from operations - additional expenses for wages and bad debts

    = $87,000 + $19,000 - $34,000

    = $72,000

    Yes the company extend credit as the total income is increased by $5,000
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