Eugene Wright is CFO of Caribbean Cruise Lines. The company designs and manufactures luxury boats. Its near
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Caribbean Cruise Lines has current assets of $12 million and current liabilities of $10.1 million. Eugene decides to delay the delivery of $1 million in inventory purchased on account from the originally scheduled date of December 26 to a new arrival date of January 3. This maneuver will decrease inventory and accounts payable by $1 million at December year-end. Eugene believes the company can somehow get by without the added inventory, as manufacturing slows down some during the holiday season.
Required:
1. How will the delay in the delivery of $1 million in inventory purchased on account affect the company’s current ratio on December 31? Provide supporting calculations of the current ratio before and after this proposed delivery delay.
2. Is this practice ethical? Provide arguments both for and against.
Accounts Payable
Accounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive...
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Related Book For
Financial Accounting
ISBN: 978-0078025549
3rd edition
Authors: J. David Spiceland, Wayne Thomas, Don Herrmann
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