Monroe Company Has Current Assets, Current Liabilities, and Long-Term Liabilities

question 68

Essay

Monroe Company has current assets, current liabilities, and long-term liabilities of $12,000, $3,000, and $9,000, respectively. Within these amounts, $1,200 is accounts payable, and $1,500 is accounts receivable. What effect will the payment of the accounts payable have on the current ratio? Should Monroe pay the accounts payable on the last day of the year? Explain.

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Definitions:

Inventory Turnover

A ratio indicating how fast a company sells and replaces its stock of goods during a particular period.

Net Sales

The total revenue from sales after deducting returns, allowances for damaged or missing goods, and discounts.

Inventory

The complete list of items such as property, goods in stock, or the contents of a building.

Inventory Turnover

A measure of how many times a company's inventory is sold and replaced over a specific period.