Activity Ratios: Payables Turnover and Number of Days of Payables
Correct!
Purchases = cost of goods sold + increase in ending inventory
>$$ = 2{,}400{,}000 + (700{,}000 - 400{,}000) = 2{,}700{,}000$$
$$\displaystyle\text{Days payable}=\frac{365}{\frac{\text{Purchases}}{\text{Average payables}}}$$
$$\displaystyle \text{Days payable}=\frac{365}{\frac{2,700,000}{\frac{100,000+300,000}{2}}}=27.0370 $$
A company had a strong sales year in 2014, but is concerned with the growth in its accounts payable balance. Assume a 365-day year and the following information (in USD).
| Yearly Data | 20X3 | 20X2 | 20X1 |
|--------------------|------------|------------|------------|
| Sales | 3,000,000 | 2,000,000 | 1,800,000 |
| Cost of Goods Sold | 2,400,000 | 1,600,000 | 1,500,000 |
| Inventory | 700,000 | 400,000 | 360,000 |
| Accounts Payable | 300,000 | 100,000 | 100,000 |
What is the number of days of payables for 20X3 _closest_ to?
Incorrect.
This answer results from incorrectly calculating 20X3 purchases.
Incorrect.
This answer results from incorrectly using cost of goods sold in calculating number of days of payables.
23.55
27.04
30.42
