Guisachan Books Inc. (Guisachan)

is a small book retailer. Guisachan has approached your company, a large publishing house, requesting credit terms on purchases. Guisachan has never purchased from your company. If credit is approved, Guisachan would be given 60 days to pay outstanding amounts. You have been provided with the following information from Guisachan’s accounting records (Guisachan’s year-end is March 31):

Required:

a. Calculate Guisachan’s accounts payable turnover ratio and average payment period for accounts payable for 2013, 2014, and 2015.

b. Assume you are the publishing house credit manager. How would you interpret the information about Guisachan’s accounts payable? How would this information influence your decision about offering credit to Guisachan? Explain. What additional information would you request before making a final decision? Explain.

c. What effect will the results you calculated in

(a) have on Guisachan’s cash from operations? Explain. Is this a good situation? Explain. How might Guisachan’s suppliers respond? Explain.

Transcribed Image Text:

2013 2014 $201,600 $ 218,400 $ 256,200 2015 $ 302,400 1,344,000 1,386,000 1,365,000 Accounts payable (on March 31) Credit purchases (for the year ended) 2012