Chapter 8, Problem 1AA

To determine

Cash and cash equivalents:

Cash and cash equivalents are the liquid assets of the company or the current assets which can be easily converted into cash. The items classified into cash and cash equivalents are shown under current assets in the company's balance sheet.

The total amount of cash and cash equivalents for fiscal year ended September 30, 2017 and September 24,2016.

Explanation of Solution

Particular	(a): Balance as on September 30, 2017(million$)	(b): Balance as on September 24, 2016 (million$)
Cash and cash equivalents	20,289	20,484

To determine

The total amount of cash and cash equivalents as a percent (rounded to one decimal) of total current assets, total current liabilities, total shareholder's equity, and total assetsfor fiscal year ended September 30, 2017 and September 24,2016.

Explanation of Solution

Particulars	Balance as on September 30, 2017(million$)	Percent of cash and cash equivalents	Balance as on September 24, 2016(million$)	Percent of cash and cash equivalents
Cash and cash equivalents	20,289		20,484
Total current assets	128,645	15.8	106,869	19.2
Total current liabilities	100,814	20.1	79,006	25.9
Total shareholder's equity	134,047	15.1	128,249	16.0
Total assets	375,319	5.4	321,686	6.4

To determine

The percent change (rounded to one decimal) between the beginning and ending year amount of cash and cash equivalents for fiscal year ended September 30, 2017 and September 24,2016.

Explanation of Solution

The formula to calculate percent change in cash and cash equivalents for year ended September 30, 2017 are as follows:

$\text{Percent}\text{change}=\left(\frac{\left(\begin{array}{l}\text{Cash}\text{and}\text{cash}\text{equivalent}\text{at}\text{the}\text{end}\\ -\text{Cash}\text{and}\text{cash}\text{equivalent}\text{at}\text{the}\text{beginning}\end{array}\right)}{\text{Cash}\text{and}\text{cash}\text{equivalent}\text{at}\text{the}\text{beginning}}\right)$

Substitute $20,289 for cash and cash equivalent at the end, and $20,484 for cash and cash equivalent at the beginning in the above formula,

$\begin{array}{c}\text{Percent}\text{change}=\left(\frac{\left(\$20,289-\$20,484\right)}{\$20,484}\right)\\ =-1.0\%\end{array}$

The formula to calculate percent change in cash and cash equivalents for September 24, 2016 are as follows:

$\text{Percent}\text{change}=\left(\frac{\left(\begin{array}{l}\text{Cash}\text{and}\text{cash}\text{equivalent}\text{at}\text{the}\text{end}\\ -\text{Cash}\text{and}\text{cash}\text{equivalent}\text{at}\text{the}\text{beginning}\end{array}\right)}{\text{Cash}\text{and}\text{cash}\text{equivalent}\text{at}\text{the}\text{beginning}}\right)$

Substitute $20,484 for cash and cash equivalent at the end, and $21,120 for cash and cash equivalent at the beginning in the above formula,

$\begin{array}{c}\text{Percent}\text{change}=\left(\frac{\left(\$20,484-\$21,120\right)}{\$21,120}\right)\\ =-3.0\%\end{array}$

To determine

Days' Sales Uncollected:

Days' sales uncollected refers to the number of days required by the company to collect payment from their debtors. It is also known as debtor collection period or average collection period.

The days' sales uncollected (rounded to one decimal) for fiscal year ended September 30, 2017 and September 24, 2016.

Explanation of Solution

The formula to calculate days' sales uncollectedfor year ended September 30, 2017 are as follows:

  $\text{Days}\text{sales}\text{uncollected}\text{2017}=\left(\frac{\text{Accounts}\text{receiveable}}{\text{Net}\text{sales}}\right)\times 365$

Substitute $17,874 for accounts receiveable, and $229,234 for net sales in the above formula,

  $\begin{array}{c}\text{Days}\text{sales}\text{uncollected}\text{2017}=\left(\frac{\$17,874}{\$229,234}\right)\times 365\\ =28.5\text{days}\end{array}$

The formula to calculate days' sales uncollected for year ended September 24, 2016 are as follows:

  $\text{Days}\text{sales}\text{uncollected}\text{2016}=\left(\frac{\text{Accounts}\text{receiveable}}{\text{Net}\text{sales}}\right)\times 365$

Substitute $15,754 for accounts receiveable, and $215,639 for net sales in the above formula,

  $\begin{array}{c}\text{Days}\text{sales}\text{uncollected}\text{2016}=\left(\frac{\$15,754}{\$215,639}\right)\times 365\\ =26.7\text{days}\end{array}$

To determine

Days' sales uncollected:

Days' sales uncollected determines the number of days required by the company to collect payment from their debtors. It is also known as debtor collection period or average collection period.

Whether the company's collection of receiveables shows a favourable or unfavourable change.

Explanation of Solution

The company's collection of receiveables shows a unfavourable change as the collection period increases from 26.7 days in 2016 to 28.5 days in 2017. This increase in number of days reflects that the company would take 1.8 extra days from to collect its receiveable in the year 2017 in comparison to year 2016.

Hence, the number of days required for collecting accounts receiveable has increased and the company is required to tighten its credit policy and reduce the average collection period.