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MK Co. has the following receivables and payables according to its statement of financial position at 31 December 20X9.
$
Receivables 375,000
Payables 150,000Suppliers give 1 1?2 months credit. Materials were purchased at an even monthly rate in 20X9.
What are the planned payments to suppliers in January 20Y0?A – $75,000
B – $250,000
C – $50,000
D- $100,000The answer is D. I confused why it is 100,00? Is 150,000 per month? what does it means by even monthly rate? planned payments to suppliers in january means early or end of month?
Evenly monthly rate means that each moth’s purchases are the same; they do not vary, for example, to respond to seasonal demand.
So, at 31/12/20X9, payables were 150,000. That represents 1.5 months’ credit so purchases must be 100,000 per month, every month.
If the company intends to keep taking 1.5 months’ credit so that payables stay at 150,000, the company will have to pay 100,000 each month. There is a steady-state: buy 100,000 each month and pay 100,000 each month.
If it paid 150,000 per month while only purchasing 100,000 per month, the payables balance would soon run down to Zero.
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