Use the following information for questions:
Blue Sea Corporation's books revealed the following for 2011 and 2010: $$\begin{array} { l c r }
& 2011 & 2010 \
\text { Cash } & 27,750 & \$ 21,250 \
\text { Accounts receivable }& 42,000 & 37,500 \
\text { Inventory } & 72,250 & 61,600 \
\text { Other prepaid assets } & 12,500 & 12,500 \
\text { Accounts payable } & 41,250 & 38,000 \
\text { Other current payables } & 13,000 & 15,000 \
\text { Sharehol ders' equity }& 100,250 & 79,850 \
\text { Sales } & 525,000 & 450,750 \
\text { Cost of sales }& 300,000 & 240,750 \
\text { Operating expenses } & 70,000 & 65,000 \
\text { Net income } & 155,000 & 145,000
\end{array}$$
-The average number of days to pay an account during 2011 was closest to:
A)28 days
B)29 days
C)48 days
D)50 days

Question

Use the following information for questions:
Blue Sea Corporation's books revealed the following for 2011 and 2010: $$\begin{array} { l c r } 
& 2011 & 2010 \
\text { Cash }  & 27,750 & \$ 21,250 \
\text { Accounts receivable }& 42,000 & 37,500 \
\text { Inventory } & 72,250 & 61,600 \
\text { Other prepaid assets } & 12,500 & 12,500 \
\text { Accounts payable } & 41,250 & 38,000 \
\text { Other current payables }  & 13,000 & 15,000 \
\text { Sharehol ders' equity }& 100,250 & 79,850 \
\text { Sales }  & 525,000 & 450,750 \
\text { Cost of sales }& 300,000 & 240,750 \
\text { Operating expenses } & 70,000 & 65,000 \
\text { Net income } & 155,000 & 145,000
\end{array}$$
-The average number of days to pay an account during 2011 was closest to:
A)28 days
B)29 days
C)48 days
D)50 days

Quizplus · Accepted Answer

The average number of days to pay an account during 2011 can be calculated using the accounts payable turnover ratio, which is the cost of sales divided by the average accounts payable. Then, the result is used to calculate the days in the period (365 days) divided by the turnover ratio. For 2011, the cost of sales is $300,000. The average accounts payable is the sum of the beginning and ending accounts payable divided by 2, which is ($41,250 + $38,000) / 2 = $39,625. The accounts payable turnover ratio is $300,000 / $39,625 = 7.57. Therefore, the average number of days to pay an account is 365 / 7.57 ≈ 48 days.

Use the Following Information for Questions: Blue Sea Corporation's Books

Use the Following Information for Questions:
Blue Sea Corporation's Books