Question
A companys accounts payable days have increased from 14 to 37. Which of the management actions is not an outgrowth of operating decisions? a. Management
A companys accounts payable days have increased from 14 to 37. Which of the management actions is not an outgrowth of operating decisions?
a. Management decided to stock commonly purchased items formerly sold as special-order merchandise. They relinquished some trade discounts by extending payments to suppliers to finance the inventory. The net effect on cash flow was a small increase in net cash after operations.
b. Management purchased extra inventory, at a very attractive price, from a supplier left with excess stock after its own largest customer canceled an order. The supplier agreed to extend terms for the purchase. The net effect on cash flow was a slight decrease in net cash after operations.
c. Management used supplier credit to reduce its bank line of credit, so it could meet a debt service coverage covenant on a term loan. Relinquished supplier discounts offset the saved interest expense. The net effect on cash flow was a significant increase in net cash after operations.
d. Management extended its supplier payments to manage cash flows during very slow seasonal sales caused by unusually harsh weather conditions. Inventory days have increased, and the company relinquished its supplier discounts. The net effect on cash flows was a small decrease in cash after operations.
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