Ally Manufacturing Has an Average Accounts Payable Balance of $420

question 71

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 payable 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 payment due date.
• D)No, since it, on average, does not take advantage of the discount period and pays well before payment is due.

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Definitions:

Consolidated Net Income

The total earnings of a corporation, after tax, including earnings from subsidiaries, before distributing dividends.

Cost Method

An accounting approach where investments are recorded at their acquisition cost, without adjustment for increases or decreases in market value.

Goodwill

An intangible asset arising when a company acquires another for more than the fair value of its net identifiable assets.

Retained Earnings

Profits that a company has earned to date, less any dividends or other distributions paid to investors.