Increase in current liabilities is directly related

Question

Rotorua Products, Ltd., of New Zealand markets agricultural products for the burgeoning Asian consumer market. The company's current assets, and current liabilities,and sales have been reported as follows over the last five years .

Year 5 Year 4 Year 3 Year 2 Year 1
Sales

• $NZ 2,250,000
• $NZ 2,160,000
• $NZ 2,070,000
• $NZ 1,980,000
• $NZ 1,800,000

Cash $NZ 30,000 $NZ 40,000 $NZ 48,000 $NZ 65,000 $NZ 50,000
Accounts receivable, net 570,000 510,000 405,000 345,000 300,000

• Inventory
• 750,000
• 720,000
• 690,000
• 660,000
• 600,000

Total current assets

• $NZ 1,350,000
• $NZ 1,270,000
• $NZ 1,143,000
• $NZ 1,070,000
• $NZ 950,000

Current liabilities

• $NZ 640,000
• $NZ 580,000
• $NZ 520,000
• $NZ 440,000
• $NZ 400,000

1. Which of the following statement is true?
2. The increase in current liabilities is directly related to the buildup in accounts receivable.
3. The sales are increasing at a steady rate.
4. The decline in cash is due to the growth in both inventories and accounts receivable.
5. The decline in cash does not reflect delays in collecting receivables.