Financial Reporting and Analysis Q203
| 2013 | 2012 | |
| Current Assets | ||
| Cash & investments | $150,250 | $135,000 |
| Accounts receivable | 200,000 | 180,200 |
| Inventories | 205,000 | 150,800 |
| Total current assets | $555,250 | $466,000 |
| Current Liabilities | ||
| Accounts payable | $150,000 | $125,000 |
| Other current liabilities | $50,000 | $50,000 |
| Total current liabilities | $500,000 | $75,000 |
The company operates in an industry in which suppliers offer terms of 2/10, net 30. The payables turnover for the average company in the industry is 8.5 times. Which of the following statements is most accurate? In 2013, the company on average:
- Option : C
- Explanation : Purchases = COGS + Ending inventory – Beginning inventory Purchases = 1250000 + 205000 – 150800 = 1304200 Payables Turnover = Purchases ÷ Average payables Payables Turnover = 1304200 ÷ (1/2 x (150000 + 125000)) = 9.5 Days Payables = 365 / 9.5 = 38.4 The firm’s days in payables is 38.5 days; therefore, it appears the firm does not normally take supplier-provided discounts (paying in 10 days) nor pay its accounts within the 30-day terms provided. However, on average, the firm is paying faster than the average firm in the industry (42.9 days).
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