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Concept Introduction:
Days Payable outstanding (DPO):
Days payable outstanding is the time in days which the company takes to pay off its accounts payable. Day's payable outstanding is calculated using the following formula:
Requirement-1:
To Calculate:
Days Payable outstanding for Current Year
Answer to Problem 13E
Days Payable outstanding for Current Year is 25
Explanation of Solution
Days Payable outstanding for Current Year is calculated as follows:
| $ Millions | Current Year |
| Accounts Payable (A) | $ 1,931 |
| Cost of Goods Sold (B) | $ 28,164 |
| Days Payable Outstanding = (A*365/B) | 25 |
Concept Introduction:
Days Payable outstanding (DPO):
Days payable outstanding is the time in days which the company takes to pay off its accounts payable. Day's payable outstanding is calculated using the following formula:
Requirement-2:
To Calculate:
Reduction in Days Payable outstanding if accounts payables are reduced by 8%
Answer to Problem 13E
Reduction in Days Payable outstanding if accounts payables are reduced by 8% shall be 2 days
Explanation of Solution
Reduction in Days Payable outstanding if accounts payables are reduced by 8% is calculated as follows:
| Before Reduction in Accounts Payable: | |
| $ Millions | Current Year |
| Accounts Payable (A) | $ 1,931 |
| Cost of Goods Sold (B) | $ 28,164 |
| Days Payable Outstanding = (A*365/B) | 25 |
| After Reduction in Accounts Payable: | |
| $ Millions | Current Year |
| Accounts Payable (A) (1931*92%) | $ 1,777 |
| Cost of Goods Sold (B) | $ 28,164 |
| Days Payable Outstanding = (A*365/B) | 23 |
| Reduction in Days Payable Outstanding (25-23) | 2 |
Concept Introduction:
Days Payable outstanding (DPO):
Days payable outstanding is the time in days which the company takes to pay off its accounts payable. Day's payable outstanding is calculated using the following formula:
Requirement-3:
To Calculate:
Increase in Days Payable outstanding if accounts payables are increased by 8%
Answer to Problem 13E
Increase in Days Payable outstanding if accounts payables are increased by 8% shall be 2 days
Explanation of Solution
Increase in Days Payable outstanding if accounts payables are increased by 8% is calculated as follows:
| Before Increase in Accounts Payable: | |
| $ Millions | Current Year |
| Accounts Payable (A) | $ 1,931 |
| Cost of Goods Sold (B) | $ 28,164 |
| Days Payable Outstanding = (A*365/B) | 25 |
| After Increase in Accounts Payable: | |
| $ Millions | Current Year |
| Accounts Payable (A) (1931*108%) | $ 2,085 |
| Cost of Goods Sold (B) | $ 28,164 |
| Days Payable Outstanding = (A*365/B) | 27 |
| Reduction in Days Payable Outstanding (27-25) | 2 |
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Chapter D Solutions
Connect Access Card For Fundamental Accounting Principles
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