Question

Melori Inc. has a current cash balance of $5,000. They have accounts receivable of $3,500, accounts payable of $1,350, and an inventory balance of $4,250.Their bank requires them to have a $5,000 cash balance at all times, but they would like to take advantage of a 3% cash discount on their accounts payable? What should they do?

Answer 1

Melori Inc. can collect accounts receivable or sell inventory to reach a $5,000 cash balance and take advantage of the cash discount.

Step-by-step explanation:

To take advantage of the 3% cash discount on their accounts payable, Melori Inc. needs to increase their cash balance to $5,000. Currently, they have a cash balance of $5,000, which meets their bank's requirements. To do this, they can either collect $1,350 from their accounts receivable or sell $750 worth of their inventory.

Collecting $1,350 from their accounts receivable:

$5,000 (current cash balance) + $1,350 (collected accounts receivable) = $6,350 (new cash balance)

Selling $750 worth of their inventory:

$5,000 (current cash balance) + $750 (sale of inventory) = $5,750 (new cash balance)

Either option will allow Melori Inc. to reach the required cash balance of $5,000 and take advantage of the cash discount.