Chapter 6, Problem 1BTN

1.

To determine

Indicate the total amount of cash and cash equivalents of Incorporation A for the fiscal years ended September 26, 2015, and September 27, 2014, and compute the percentage of cash in current assets, total current liabilities, total shareholders’ equity, and total assets for the said dates, and interpret the trends.

Explanation of Solution

Cash and cash equivalents: Cash is the money readily available in the form of currency. Cash equivalents are the near-cash items, which are readily convertible into cash.  Cash equivalents have a maturity period of three months, or less than 3 months. Cash equivalents are reported along with cash in the assets section of the balance sheet, as ‘Cash and cash equivalents’.

Balance of cash and cash equivalents: Cash and cash equivalents of Incorporation A as on September 27, 2014 are $13,844,000,000 and on September 26, 2015 are $21,120,000,000.

Percentage of cash in current assets: In 2015, Incorporation A represents 23.6% $\left(\$21,120,000,000÷\$89,378,000,000\right)$ of cash ($21,120,000,000) in current assets of $89,378,000,000, and in 2014, 20.2% $\left(\$13,844,000,000÷\$68,531,000,000\right)$  of cash ($13,844,000,000) in current assets of $68,531,000,000. This shows that the percentage has increased from 20.2% in 2014 to 23.6% in 2015.

Percentage of cash in current liabilities: In 2015, Incorporation A represents 26.2% $\left(\$21,120,000,000÷\$80,610,000,000\right)$ of cash ($21,120,000,000) in current liabilities of $80,610,000,000, and in 2014, 21.8% $\left(\$13,844,000,000÷\$63,448,000,000\right)$  of cash ($13,844,000,000) in current liabilities of $63,448,000,000. This shows that the percentage has increased from 21.8% in 2014 to 26.2% in 2015.

Percentage of cash in shareholders’ equity: In 2015, Incorporation A represents 17.7% $\left(\$21,120,000,000÷\$119,355,000,000\right)$ of cash ($21,120,000,000) in shareholders’ equity of $119,355,000,000, and in 2014, 12.4% $\left(\$13,844,000,000÷\$111,547,000,000\right)$  of cash ($13,844,000,000) in shareholders’ equity of $111,547,000,000. This shows that the percentage has increased from 12.4% in 2014 to 17.7% in 2015.

Percentage of cash in total assets: In 2015, Incorporation A represents 7.3% $\left(\$21,120,000,000÷\$290,479,000,000\right)$ of cash ($21,120,000,000) in total assets of $290,479,000,000, and in 2014, 6.0% $\left(\$13,844,000,000÷\$231,839,000,000\right)$  of cash ($13,844,000,000) in total assets of $231,839,000,000. This shows that the percentage has increased from 6.0% in 2014 to 7.3% in 2015.

Interpretation of the trends: Since cash and cash equivalents increased much more than the respective bases, the percentage of cash increased. Hence, the liquidity position of Incorporation also increased.

Note: Refer to the Appendix A of the textbook, to find the referred values of Incorporation A, in the Consolidated Balance Sheets, as at September 26, 2015.

2.

To determine

Indicate the percentage change in beginning and ending cash and cash equivalents as per the statement of cash flows for the years ended September 26, 2015 and September 27, 2014.

Explanation of Solution

Percentage of cash and cash equivalents for the year ended September 26, 2015: In 2015, cash and cash equivalents changed from $13,844,000,000 to $21,120,000,000. The percentage increased by 52.6% $\left(\left(\$21,120,000,000-\$13,844,000,000\right)÷\$13,844,000,000\right)$ for the year ended September 26, 2015.

Percentage of cash and cash equivalents for the year ended September 27, 2014: In 2014, cash and cash equivalents changed from $14,259,000,000 to $13,844,000,000. The percentage decreased by 2.9% $\left(\left(\$13,844,000,000-\$14,259,000,000\right)÷\$14,259,000,000\right)$ for the year ended September 27, 2014.

Note: Refer to the Appendix A of the textbook, to find the referred values of Incorporation A, in the Consolidated Balance Sheets, as at September 26, 2015.

3.

To determine

Compute days’ sales uncollected of Incorporation A, for the years ended September 26, 2015 and September 27, 2014.

Explanation of Solution

Days’ sales uncollected: This ratio measures the number of days a company takes to collect its accounts receivables. This ratio analyzes the period for which the receivables are outstanding. So, this ratio gauges the efficacy of collecting receivables. Lower the ratio, more efficient the collection of receivables.

Formula for days’ sales uncollected:

$\text{Days' sales uncollected =}\frac{\text{ Accounts receivable}}{\text{Net sales}}\times 365$

Compute days’ sales uncollected of Incorporation A for the year ended September 26, 2015.

$\begin{array}{c}\text{Days' sales uncollected =}\frac{\text{ Accounts receivable}}{\text{Net sales}}\text{×365 days}\\ \text{=}\frac{\text{\$16,849,000,000}}{\text{\$233,715,000,000}}\text{×365 days}\\ \text{=26}\text{.31 days}\end{array}$

Compute days’ sales uncollected of Incorporation A for the year ended September 27, 2014.

$\begin{array}{c}\text{Days' sales uncollected =}\frac{\text{ Accounts receivable}}{\text{Net sales}}\text{×365 days}\\ \text{=}\frac{\text{\$17,460,000,000}}{\text{\$182,795}\text{.000,000}}\text{×365 days}\\ \text{= 34}\text{.86 days}\end{array}$

Analysis: The days’ sales uncollected has changed from 34.86 days in 2014 to 26.31 days in 2015. This denotes that the collection period decreased from 2014 to 2015, hence, the efficiency of collection of receivables increased.

Note: Refer to the Appendix A of the textbook, to find the referred values of Incorporation A, in the Consolidated Balance Sheets, as at September 26, 2015.

4.

To determine

Compute days’ sales uncollected of Incorporation A, for the year ended September 30, 2017 and September 24, 2016.

Explanation of Solution

Compute days’ sales uncollected of Incorporation A for the year ended September 30, 2017.

$\begin{array}{c}\text{Days' sales uncollected =}\frac{\text{ Accounts receivable}}{\text{Net sales}}\text{×365 days}\\ \text{=}\frac{\text{\$17,874,000,000}}{\text{\$229,234}\text{.000,000}}\text{×365 days}\\ \text{= 28}\text{.46 days}\end{array}$

Compute days’ sales uncollected of Incorporation A for the year ended September 24, 2016.

$\begin{array}{c}\text{Days' sales uncollected =}\frac{\text{ Accounts receivable}}{\text{Net sales}}\text{×365 days}\\ \text{=}\frac{\text{\$15,754,000,000}}{\text{\$215,639}\text{.000,000}}\text{×365 days}\\ \text{= 26}\text{.67 days}\end{array}$

Analysis: The days’ sales uncollected has changed from 26.67 days in 2016 to 28.46 days in 2017. This denotes that the collection period increased from 2014 to 2015, hence, the efficiency of collection of receivables decreased.

Note: Refer to the website given in the question for the values of Incorporation A, in the Consolidated Balance Sheets, as at September 30, 2017.