LeokLee Industries has an average accounts payable balance of $720,000. Its average annual cost of goods sold is $8,760,000. It receives terms of 1/10 net 30 from its suppliers. Is LeokLee managing its accounts payables well?
A) Yes, since it, on average, chooses not to take the discount, but pays when payment is due.
B) Yes, since it, on average, takes the discount, and pays at the end of the discount period.
C) Yes, since it, on average, stretches payment beyond the due payment date.
D) No, since it, on average, does not take advantage of the discount period and pays well before payment is due.

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To determine if LeokLee Industries is managing its accounts payables well, we need to calculate the Payables Turnover Ratio and the Average Payment Period. The Payables Turnover Ratio is calculated as Cost of Goods Sold / Average Accounts Payable, which is $8,760,000 / $720,000 = 12.17 times per year. The Average Payment Period is then 365 days / Payables Turnover Ratio, which is 365 / 12.17 ≈ 30 days. Since the terms are 1/10 net 30, paying on average in 30 days means LeokLee is not taking the discount but is paying when the payment is due, indicating they are managing their payables well by not incurring late fees or damaging supplier relationships.

LeokLee Industries Has an Average Accounts Payable Balance of $720,000