Consider the following financial statement information for the Hathaway Corporat
ID: 2644025 • Letter: C
Question
Consider the following financial statement information for the Hathaway Corporation:
Inventory: Beginning $10,500, Ending $11,500
Accounts receivable: Beginning 5,500, Ending 5,800
Accounts payable: Beginning 7,700, Ending 8,100
Credit sales $85,000
Cost of goods sold 65,000
Calculate the operating and cash cycles (Use 365 days a year)
A.Operating cycle 86.03 days, Cash cycle 41.67 days B.Operating cycle 61.77 days, Cash cycle 24.26 days C.Operating cycle 61.77 days, Cash cycle 41.67 days D.Operating cycle 130.39 days, Cash cycle 41.67 daysExplanation / Answer
days of inventory outstanding = (11500 + 10500)/2 * (1/65000) * 365 = 61.77 days
days of sales outstanding = (5500 + 5800)/2 * (1/85000) * 365 = 24.26 days
days payable outstanding = (7700 + 8100)/2 * (1/65000) * 365 = 44.36 days
operating cycle = 61.77 + 24.26 = 86.03 days
cash cycle = 61.77 + 24.26 - 44.36 = 41.67 days
hence correct choice is A
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