Landseeker's Restaurants reported cost of goods sold of $322 million and accounts payable of $84 million for 2017. In 2016, cost of goods sold was $258 million and accounts payable was $72 million. Landseeker's accounts payable turnover ratio in 2017 is closest to:

Question

Quizplus · Accepted Answer

Accounts payable turnover ratio is a measure of how frequently a company pays off its suppliers. It is calculated by dividing the cost of goods sold by the average accounts payable balance.

Accounts payable turnover ratio for 2017 = Cost of goods sold / Average accounts payable balance.

Average accounts payable balance = (Beginning accounts payable balance + Ending accounts payable balance)/2

Beginning accounts payable balance for 2017 = Ending accounts payable balance for 2016 = $72 million.

Average accounts payable balance = ($72 million + $84 million)/2 = $78 million.

Therefore, accounts payable turnover ratio for 2017 = $322 million / $78 million = 4.13.

Thus, the closest option to 4.13 is B) 4.13.

Landseeker's Restaurants Reported Cost of Goods Sold of $322 Million