Ally Manufacturing Has an Average Accounts Payable Balance of $420,000

question 32

Multiple Choice

Ally Manufacturing has an average accounts payable balance of $420,000.Its average annual cost of goods sold is $10,220,000.It receives terms of 2/15 net 30 from its suppliers.Is Ally managing its accounts payables well?

• A)Yes,since it,on average,chooses not to take the discount,but pays when payment is due.
• B)Yes,since it,on average,takes the discount,and pays at the end of the discount period.
• C)Yes,since it,on average,stretches payment beyond the due payment date.
• D)No,since it,on average,does not take advantage of the discount period and pays well before payment is due.
• E)No,since it,on average,does not make payment before it is due.

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Definitions:

Sales Units

The quantity or number of products sold or services rendered by a business during a specific period.

Product Warranty Payable

A liability account that records the estimated amounts a company expects to pay for warranties on products it has sold.

Product Warranty Expense

Costs associated with the repair or replacement of faulty products that have been sold, under the terms of a product warranty.

Estimated Product

A provisional evaluation or calculation of a product's potential production costs, sales value, or impact on the market.