Chapter 8, Problem 3AA

To determine

Concept Introduction:

Cash and Cash Equivalent:

Cash and cash equivalent are basically cash (currency) or the short-term assets which have high liquidity and can be converted into cash within short period of time.

Requirement 1:

To compute:

Compute cash and cash equivalents as a percent of total current assets, total assets, total current liabilities and total shareholder's equity for both years.

Answer to Problem 3AA

Cash and Cash Equivalent as percent of:

	Total Current Assets	Total Assets	Total Current Liabilities	Total Stockholders' Equity
Current Year	20.8%	10.1%	45.5%	14.2%
Prior Year	22.7%	12.2%	58.7%	16.6%

Explanation of Solution

Cash and Cash Equivalent as Percent of:

Current Year

• Total Current Asset = Cash and Cash Equivalent / Total Current Assets X 100

  = 30,545,130 / 146,982,464 X 100

  = 20.8%

• Total Asset = Cash and Cash Equivalent / Total Assets X 100

  = 30,545,130 / 301,752,090 X 100

  = 10.1%

• Total Current Liabilities = Cash and Cash Equivalent / Total Current Liabilities X 100

  = 30,545,130 / 67,175,114 X 100

  = 45.5%

• Total Stockholders' Equity = Cash and Cash Equivalent / Total Current Liabilities X 100

    $\begin{array}{l}=30,545,130/214,491,428X100\hfill \\ =14.2\%\hfill \end{array}$

Prior Year

• Total Current Asset = Cash and Cash Equivalent / Total Current Assets X 100

    $\begin{array}{l}=32,111,442/141,429,704X100\hfill \\ =22.7\%\hfill \end{array}$

• Total Asset = Cash and Cash Equivalent / Total Assets X 100

    $\begin{array}{l} =32,111,442/262,174,324X100\hfill \\ =12.2\%\hfill \end{array}$

• Total Current Liabilities = Cash and Cash Equivalent / Total Current Liabilities X 100

    $\begin{array}{l}=32,111,442/54,704,095X100\hfill \\ =58.7\%\hfill \end{array}$

• Total Stockholders' Equity = Cash and Cash Equivalent / Total Current Liabilities X 100

    $\begin{array}{l} =32,111,442/192,963,033X100\hfill \\ =16.6\%\hfill \end{array}$

To determine

Concept Introduction:

Percentage Change:

The comparison of last year and current year to determine the amount of change is known as percentage change.

Requirement 2:

To Compute:

Compute the percentage change between the current year and prior year cash balances

Answer to Problem 3AA

Percentage change in cash balance is 4.9%.

Explanation of Solution

Percentage Change in Cash Balance = Change in Cash Balance / Prior Year Cash Balance X 100

  $\begin{array}{l}=1,566,312/32,111,442X100\hfill \\ =4.9\%\hfill \end{array}$

*Change in Cash Balance = Prior Year (Cash) − Current Year (Cash)

= 32,111,442 − 30,545,130

= 1,566,312

To determine

Concept Introduction:

Days' Sales Uncollected:

The financial ratio which expresses the average number of days taken by the business to collect cash from its debtors or accounts receivable. It is computed by dividing the accounts receivable by the average sales per day. Lower ratio of days' sales uncollected is considered favorable as it symbolizes lesser period taken to collect from the debtors of the business and vice-versa.

Requirement 3:

To compute:

Compute the days' sales uncollected at the end of both

(a) Current year and

(b) Prior year.

Answer to Problem 3AA

Year	Percent
Current Year	48.5 Days
Prior Year	50.3 Days

Explanation of Solution

Days' Sales Uncollected = Accounts Receivable / Average Sales Per Day

Average Sales Per Day = Net Sales / 365 Days

Current Year = 31,804,956 / 656,370.9

= 48.5 Days

*Average Sales Per Day = 239,575,376 / 365

= 656,370.9

Prior Year = 27,800,408 / 553,059.6

= 50.3 Days

To determine

Concept Introduction:

Days' Sales Uncollected:

The financial ratio which expresses the average number of days taken by the business to collect cash from its debtors or accounts receivable. It is computed by dividing the accounts receivable by the average sales per day. Lower ratio of days' sales uncollected is considered favorable as it symbolizes lesser period taken to collect from the debtors of the business and vice-versa.

Requirement 4:

To find:

Does Samsung's collection of receivables show a favorable or unfavorable change?

Answer to Problem 3AA

Although the collection period of receivables are very high, but Samsung's collection of receivables show a favorable change, since it is decreasing

Explanation of Solution

The collection period of Samsung in Prior year was 50 days which has decrease by 5 days in the current year. It is consider as favorable change because in the current year the company requires 5 days less to collect its receivables which decreases the period of business cycle of the company.