Question

Tejan Florals, a regional floral chain, has provided you with its Balance Sheets as of January 31, 2015 and 2016, which is the ending date of the firm’s fiscal year:

		2015		2016
		DOLLARS		DOLLARS
ASSETS:
Cash		95,000		125,000
Accounts Receivable		1,200,000		1,450,000
Inventories		3,200,000		4,025,000
Total Current Assets		4,495,000		5,600,000
Net Fixed Assets		6,540,000		8,700,000
TOTAL ASSETS		11,035,000		14,300,000
LIABILITIES AND EQUITY:
Accounts Payable		1,750,000		2,500,000
Notes Payable		800,000		1,000,000
Accruals		75,000		1,040,000
Total Current Liabilities		2,625,000		4,540,000
Long-Term Debt		3,885,000		4,160,000
TOTAL LIABILITIES		6,510,000		8,700,000
Common Stock at Par Value		50,000		50,000
Paid-In Capital in Excess of Par Value		75,000		75,000
Retained Earnings		4,400,000		5,475,000
TOTAL STOCKHOLDERS' EQUITY		4,525,000		5,600,000
TOTAL LIABILITIES AND EQUITY		11,035,000		14,300,000

1. Calculate the common-size “Accounts Payable” % for both 2015 and 2016:

2015

2016:

2. Assume that Tejan Florals had “Cost of Goods Sold” values on its Income Statements as follows for 2015 and 2016:

• 2015: $10,500,000
• 2016: $13,000,000

1. Using this information and the information shown on the firm’s Balance Sheets above, calculate the firm’s “Accounts Payable Turnover” in 2015 and 2016:

2015:

2016:

2. Using the “Accounts Payable Turnover rates that you calculated above, and assuming a 360-day year, calculate the “Average Payment Period” for Tejan Florals for 2015 and 2016:

2015:

            2016:

C. Based on the calculations you have completed for Tejan Florals, does it appear that the firm is managing its “Accounts Payable” effectively? Please explain.

Answer 1