e. Suppose DLeons sales manager told the sales staff to start offering 60 day credit terms rather than the 30 day terms now being offered. DLeons competitors react by offering similar terms, so sales remain constant. What effect would this have on the cash account? How would the cash account be affected if sales doubled as a result of the credit policy change?

f. Can you imagine a situation in which the sales price exceeds the cost of producing and selling a unit of output, yet a dramatic increase in sales volume causes the ash balance to decline? Explain.

g. Did DLeon finance its expansion program with internally generated funds) additions to retained earnings plus depreciation) or with external capital? How does the choice of financing affect the companys financial strength?

h. Refer to Tables IC 3.2 and IC 3.4. Suppose DLeon broke even in 2016 in the sense that sales revenues equaled today operation costs plus interest charges. Would the asset expansion have caused the company to experience a cash shortage the required it to Raise external capital? Explain

i. If DLeon starts depreciation fixed assets over 7 years rather than 10 years, would that affect (1) the physical stock of assets, (2) the balance sheet account for fixed assets, (3) the companys reported net income, and (4) the companys cash position? Assume that the same depreciation method is used for stockholder reporting and for tax calculations and that the accounting change has no effect on assets physical lives.

		Balance Sheet Table IC3.1			2016		2015
Assets
Cash				$	7,282	$	57,600
Accounts receivable					632,160		351,200
Inventories					1,287,360		715,200
	Total currnet assets			$	1,926,802	$	1,124,000
Gross fixed assets					1,202,950		491,000
Less accumulated depreciation					263,160		146,200
	Net fixed assets			$	939,790	$	344,800
Total assets				$	2,866,592	$	1,468,800
Liablilities and Equity
Accounts payable				$	524,160	$	145,600
accruals					489,600		136,000
Notes payable					636,808		200,000
	Ttoal current liabilities			$	1,650,568	$	481,600
Long-term debt					723,432		323,432
Common stock (100,000 Shares)					460,000		460,000
retained earnings					32,592		203,768
	Total Equity			$	492,592	$	663,763
Total liabilities and equity				$	2,866,592	$	1,468,800
		Balance Sheet Table IC3.1			2016		2015
Assets
Cash				$	7,282	$	57,600
Accounts receivable					632,160		351,200
Inventories					1,287,360		715,200
	Total currnet assets			$	1,926,802	$	1,124,000
Gross fixed assets					1,202,950		491,000
Less accumulated depreciation					263,160		146,200
	Net fixed assets			$	939,790	$	344,800
Total assets				$	2,866,592	$	1,468,800
Liablilities and Equity
Accounts payable				$	524,160	$	145,600
accruals					489,600		136,000
Notes payable					636,808		200,000
	Ttoal current liabilities			$	1,650,568	$	481,600
Long-term debt					723,432		323,432
Common stock (100,000 Shares)					460,000		460,000
retained earnings					32,592		203,768
	Total Equity			$	492,592	$	663,763
Total liabilities and equity				$	2,866,592	$	1,468,800
Table IC 3.2		Income statement
								2016		2015
	Sales						$	6,034,000	$	3,432,000
	Cost of goods sold							5,528,000		2,864,000
	other expenses							519,988		358,672
	Total operating costs excluding deprecitaion and amortization						$	6,047,988	$	3,222,672
	Depreciation and amorization							116,960		18,900
	Ebit						$	-130,948	$	190,428
	Interest expense							136,012		43,828
	EBT						$	-266960		146,600
	Taxes (40%)							-106,784		87,960
	Net income						$	-160,176		87,960
	EPS						$	-1,602	$	87,960
	DPS						$	0	$	0
	book value per share						$	5	$	7
	Stock price						$	2	$	9
	Shares outstanding							100,000		100,000
	Tax rate							40.00%		40.00%
	Lease payments							40,000		40,000
	sinking fund payments							0		0
	Table IC 3.3		Statement of Stockholders Equity, 2016
				Common Stock
						Retained		Total stockholders
			Shares	Amount		Earning		Equity
Balances December 31, 2015			100,000	$460,000		203,768		663,768
2016 Net income						-160,176
Cash dividends						-11,000
Addition (subtraction) to retained earnings	subtraction)							-171,176
Balances, December 31, 2016			100,000	$460,000		$32,592		$492,592