LL Cross has annual sales of $2.12 million.The cost of goods sold is equal to 76 percent of sales.The average accounts receivable balance is$172,700 and the average accounts payable balance is $178,900.How many days on average does it take the firm to pay its suppliers?

Question

Quizplus · Accepted Answer

First, we need to calculate the cost of goods sold (COGS):
COGS = 76% x $2.12 million = $1.6112 million

Next, we can calculate the average accounts payable turnover period:
Accounts payable turnover = COGS / Average accounts payable balance
Accounts payable turnover = $1.6112 million / $178,900
Accounts payable turnover = 9

To convert accounts payable turnover into days, we divide 365 days by the turnover:
Payable turnover period = 365 days / 9
Payable turnover period = 40.53 days

Therefore, it takes LL Cross an average of 40.53 days to pay its suppliers. The best answer choice is D).

LL Cross Has Annual Sales of $2