Which shows the amounts due to suppliers as part of accounts

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Problem 1: A company needs to buy inventory for $100. The suppliers allow the company 30 days to pay its bills. However, the company will take longer to sell the inventory and hence needs credit. Instead of borrowing money from a bank, the company negotiates longer credit terms from its suppliers. It shows the amounts due to its suppliers as part of accounts payable.

a. This will lower the reported debt/equity ratio and temporarily improve operating cash flows compared to the scenario in which the company had borrowed cash from a bank to pay the suppliers.
b. This will raise the reported debt/equity ratio and temporarily hurt operating cash flows compared to the scenario in which the company had borrowed cash from a bank to pay the suppliers.
c. This will not change the reported debt/equity ratio compared to the scenario in which the company had borrowed cash from a bank to pay the suppliers. It will also not affect operating cash flows.
d. Cannot answer based on the information given.

Reference no: EM132979613

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