Peter's Pool House has an interval measure of 51. This means that the Pool House has:
A) To replace its inventory every 51 days.
B) To wait for 7.16 days to collect its receivables after a sale is made.
C) Enough cash to pay for 51 days of operating expenses.
D) Suﬃcient current assets to operate the business for 7.16 days.
E) Suﬃcient current assets to operate the business for 51 days.

Question

Quizplus · Accepted Answer

The interval measure is a measure of a company's liquidity and represents the number of days for which the company can continue its operations using only its current assets without any external sources of funds. Therefore, a higher interval measure indicates higher liquidity and lower risk of insolvency.

In this case, the pool house has an interval measure of 51, which means that it has sufficient current assets to operate the business for 51 days without external sources of funds. Option E correctly reflects this interpretation and is therefore the best choice.

Options A, B, C, and D are incorrect because they do not accurately reflect the meaning of the interval measure. The interval measure is not related to the frequency of inventory replacement or the collection of receivables, nor does it indicate the availability of cash to pay for operating expenses.

Peter's Pool House Has an Interval Measure of 51