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Interpreting Activity RatiosDetermine which of the following statement is true? (Note: More than one option may be correct.)For company A, accounts receivable of $0.5 million represents 45 days of sales revenue outstanding Both the company pay their supplier 300 days after deliveryCompany B’s days inventory outstanding (DIO) is greater than company A’s DIOFor company B, accounts receivable of $2 million represents 45 days of sales outstanding

Question

Interpreting Activity RatiosDetermine which of the following statement is true? (Note: More than one option may be correct.)For company A, accounts receivable of 0.5millionrepresents45daysofsalesrevenueoutstanding Boththecompanypaytheirsupplier300daysafterdeliveryCompanyB’sdaysinventoryoutstanding(DIO)isgreaterthancompanyA’sDIOForcompanyB,accountsreceivableof0.5 million represents 45 days of sales revenue outstanding Both the company pay their supplier 300 days after deliveryCompany B’s days inventory outstanding (DIO) is greater than company A’s DIOFor company B, accounts receivable of 2 million represents 45 days of sales outstanding

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Solution

The question is asking to determine which of the following statements are true. However, without additional information or context, it's impossible to definitively say which statements are true. Here's what we can infer from each statement:

  1. For company A, accounts receivable of 0.5millionrepresents45daysofsalesrevenueoutstanding:ThiscouldbetrueifcompanyA′sdailysalesrevenueisapproximately0.5 million represents 45 days of sales revenue outstanding: This could be true if company A's daily sales revenue is approximately 11,111 ($0.5 million/45 days).

  2. Both the company pay their supplier 300 days after delivery: This statement could be true, but it would be unusual as most companies pay their suppliers much sooner than 300 days after delivery.

  3. Company B’s days inventory outstanding (DIO) is greater than company A’s DIO: Without specific DIO figures for both companies, we can't determine the truth of this statement.

  4. For company B, accounts receivable of 2millionrepresents45daysofsalesoutstanding:ThiscouldbetrueifcompanyB′sdailysalesareapproximately2 million represents 45 days of sales outstanding: This could be true if company B's daily sales are approximately 44,444 ($2 million/45 days).

In conclusion, any of these statements could be true, but we need more information to confirm.

This problem has been solved

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