Chapter 8, Problem 1BTN

1.

To determine

Indicate the total amount of cash and cash equivalents of Incorporation A for the fiscal years ended September 28, 2013, and September 29, 2012, 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 28, 2013 are $14,259,000,000 and on September 29, 2012 are $10,746,000,000.

Percentage of cash in current assets: In 2013, Incorporation A represents 19.5% $\left(\$14,259,000,000÷\$73,286,000,000\right)$ of cash, $14,259,000,000 in current assets of $73,286,000,000, and in 2012, 18.6% $\left(\$10,746,000,000÷\$57,653,000,000\right)$  of cash, $10,746,000,000 in current assets of $57,653,000,000. This shows that the percentage has increased from 18.6% in 2012 to 19.5% in 2013.

Percentage of cash in current liabilities: In 2013, Incorporation A represents 32.7% $\left(\$14,259,000,000÷\$43,658,000,000\right)$ of cash, $14,259,000,000 in current liabilities of $43,658,000,000, and in 2012, 27.9% $\left(\$10,746,000,000÷\$38,542,000,000\right)$  of cash, $10,746,000,000 in current liabilities of $38,542,000,000. This shows that the percentage has increased from 27.9% in 2012 to 32.7% in 2013.

Percentage of cash in shareholders’ equity: In 2013, Incorporation A represents 11.5% $\left(\$14,259,000,000÷\$123,549,000,000\right)$ of cash, $14,259,000,000 in shareholders’ equity of $123,549,000,000, and in 2012, 9.1% $\left(\$10,746,000,000÷\$118,210,000,000\right)$  of cash, $10,746,000,000 in shareholders’ equity of $118,210,000,000. This shows that the percentage has increased from 9.1% in 2012 to 11.5% in 2013.

Percentage of cash in total assets: In 2013, Incorporation A represents 6.9% $\left(\$14,259,000,000÷\$207,000,000,000\right)$ of cash, $14,259,000,000 in total assets of $207,000,000,000, and in 2012, 6.1% $\left(\$10,746,000,000÷\$176,064,000,000\right)$  of cash, $10,746,000,000 in total assets of $176,064,000,000. This shows that the percentage has increased from 6.1% in 2012 to 6.9% in 2013.

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 28, 2013.

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 28, 2013 and September 29, 2012.

Explanation of Solution

Percentage change of cash and cash equivalents for the year ended September 28, 2013: In 2013, cash and cash equivalents changed from $10,746,000,000 in the beginning of the year to $14,259,000,000 in the ending of the year. The percentage increased by 32.7% $\left(\left(\$14,259,000,000-\$10.746,000,000\right)÷\$10,746,000,000\right)$ for the year ended September 28, 2013.

Percentage change of cash and cash equivalents for the year ended September 29, 2012: In 2012, cash and cash equivalents changed from $9,815,000,000 in the beginning of the year to $10,746,000,000 in the ending of the year. The percentage increased by 9.5% $\left(\left(\$10,746,000,000-\$9,815,000,000\right)÷\$9,815,000,000\right)$ for the year ended September 29, 2012.

Note: Refer to the Appendix A of the textbook, to find the referred values of Incorporation A, in the Consolidated Statement of Cash Flows for the years ended September 28, 2013 and September 29, 2012.

3.

To determine

Compute days’ sales uncollected of Incorporation A, for the years ended September 28, 2013 and September 29, 2012.

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:

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

Compute days’ sales uncollected of Incorporation A for the year ended September 28, 2013.

 $\begin{array}{c}\text{Days' sales uncollected =}\frac{\text{ Accounts receivable}}{\text{Net sales}}\text{×365 days}\\ \text{=}\frac{\text{\$13,102,000,000}}{\text{\$170,910,000,000}}\text{×365 days}\\ \text{=27}\text{.98 days}\end{array}$

Compute days’ sales uncollected of Incorporation A for the year ended September 29, 2012.

 $\begin{array}{c}\text{Days' sales uncollected =}\frac{\text{ Accounts receivable}}{\text{Net sales}}\text{×365 days}\\ \text{=}\frac{\text{\$10,930,000,000}}{\text{\$156,508}\text{.000,000}}\text{×365 days}\\ \text{= 25}\text{.49 days}\end{array}$

Analysis: The days’ sales uncollected has changed from 25.49 days in 2012 to 27.98 days in 2013. This denotes that the ratio increased from 2012 to 2013, hence, the efficiency of collection of receivables decreased.

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 26, 2015 and September 27, 2014.

Explanation of Solution

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 ratio decreased from 2014 to 2015, hence, the efficiency of collection of receivables increased.

Note: Refer to the website given in the question for the values of Incorporation A, in the Consolidated Balance Sheets, as at September 26, 2015.