Question

1. The following data is available for Tommy's Toys for the years 2008 through 2011 (10 points) 2011 2010 2009 2008 Cost of goods sold $7,506 $7,646 $7,799 $7,815 Accounts payable $1,023 $1,022 $878 $ 896 A. Calculate the accounts payable turnover ratio for the following years: 1. 2011 2. 2010 3. 2009 Calculate the number of days it is taking Tommy's Toys to pay their vendors (assume a 365 day year): 1. 2011 2. 2010 3. 2009 Explain whether Tommy's Toys is doing a better job of paying their vendors in a timely manner.

Answer 1

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Answer can be rounded per question, e.g. 2 decimal or 1 decimal: Solution: A) Accounts payable turnover ratio = (Net purchases / Average Accounts payable) Year 2011 = (7506)/((1023-1022)/2] 7.34 times Year 2010 = (7646)/[(1022+878)/2] 8.05 times Year 2009 = (7799)/[(878+896)/2] 8.79 times B) Days taken to pay Vendors = (365)/(Accounts payable turnover ratio) Year 2011 = (365/7.34)= 49.72 Days or 49.7 Year 2010 = (365/8.05)= 45.35 Days or 45.3 or 45.34 Year 2009 = (365/8.79)= 41.51 Days or 41.5 or 41.52 C) Yes Tommy is improving its payment cycle to its vendors. As days taken to pay vendors are decreasing.