Using the information provided, what is the accounts payable cycle for the firm?
Perfect Purchase Electronics
Selected Income Statement Items, 2014
Cash Sales $1,500,000
Credit Sales $7,500,000
Total Sales $9,000,000
COGS $6,000,000
Perfect Purchase Electronics
Selected Balance Sheet Accounts
12/31/2014 12/31/2013 Change
Accounts Receivable $270,000 $240,000 $30,000
Inventory $125,000 $100,000 $25,000
Accounts Payable $110,000 $90,000 $20,000
A) 4.06 days
B) 4.87 days
C) 6.08 days
D) 24.33 days
Answer: C
Explanation: C)
1. Average accounts payable = (beginning of year AR + end of year AP)/2
= ($110,000 + $90,000)/2
= $100,000
2. Accounts Payable Turnover = COGS/Average Accounts Payable
= $6,000,000/$100,000
= 60 times.
3. Accounts Payable Cycle = 365 days/Accounts Payable Turnover
= 365 days/60
= 6.08 days.
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