The Mountain Top Shoppe has sales of $828,000, average accounts receivable of $64,100 and average accounts payable of $72,700. The cost of goods sold is equivalent to 68 percent of sales. How long does it take The Mountain Top Shoppe to pay its suppliers?

Question

Quizplus · Accepted Answer

First, we need to calculate the average collection period for accounts receivable using the formula:

Average Collection Period = (Accounts Receivable / Sales) x 365

Average Collection Period = (64100 / 828000) x 365 = 28.19 days

Next, we need to calculate the average payment period for accounts payable using the formula:

Average Payment Period = (Accounts Payable / Cost of Goods Sold) x 365

Cost of Goods Sold = 0.68 x 828000 = 562240

Average Payment Period = (72700 / 562240) x 365 = 47.13 days

Therefore, it takes The Mountain Top Shoppe 47.13 days to pay its suppliers on average. The best choice is C.

The Mountain Top Shoppe Has Sales of $828,000, Average Accounts