OPERATING CYCLE AND CURRENT RECEIVABLES For each of the businesses described below, indicate the length of the operating cycle and the duration of the longest receivable that can be classified as current on the business’s balance sheet.

a. Dither and Sly are attorneys-at-law who specialize in federal income tax law. They complete their typical case in six months or less and collect from the typical client within one additional month.

b. Johnston’s Market specializes in fresh meat and fish. All merchandise must be sold within one week of purchase. Most sales are for cash, and any receivables are generally paid by the end of the following month.

c. Mortondo’s is a women’s clothing store specializing in high-style merchandise.

Merchandise spends an average of seven months on the rack following purchase.

Most sales are on credit, and the typical customer pays within one month of sale.

d. Trees, Inc., grows Christmas trees and sells them to various Christmas tree lots.

Most receivables are paid within a month of delivery of the trees. It takes six years to grow a tree.

Exercise