Chapter 6, Problem 1AA

To determine

Cash Equivalents:

Cash equivalents are part of liquid investments. It includes marketable securities, physical cash and commercial paper.

Cash Flow:

Cash flow is a statement which shows flow of cash and cash equivalents as moving inward and outward of the business in a given time. In other words, cash flow statement shows cash generated or used by a company.

Inventory:

Inventory is an asset of the company which includes three types of goods: work in progress, raw material and finished goods which are in the process of making or already ready to be sold in the market. In other words inventory is goods which are unsold and would be sold.

1.

To identify: Total amount of cash and cash equivalents and its percentage in reference of total current assets, total current liabilities, total shareholder’s equity and total assets for 2015 and 2017.

Explanation of Solution

Balance of cash and cash equivalents as on September26, 2014and 2015 are as follows:

Particulars	Balance as on September26, 2015($)	% of cash and cash equivalents(%)	Balance as on September27, 2014($)	% of cash and cash equivalents(%)
Cash and its equivalents	21,120		13,844
Current Assets	89,378	23.6	68,531	20.2
Current Liabilities	80,610	26.2	63,448	21.8
Shareholder’s Equity	119,355	17.7	111,547	12.4
Net Assets	290,479	7.3	231,839	6.0

Table (1)

Review of trend:

From above data, it is observed that cash and cash equivalents have increased in 2017 as compared to 2016.

Hence, it is ascertained that liquidity position of A Company has increased slightly as compared to last year .

Working notes:

Formula to calculate % of cash and cash equivalent is,

  $\text{\%}\text{of}\text{cash}\text{and}\text{cash}\text{equivalent}=\frac{\text{Respective}\text{year's}\text{cash}\text{and}\text{cash}\text{equivalents}}{\text{Analyze}\text{item}\text{amount}}\times 100$

Percent of cash and cash equivalents on September 26, 2015 proportionate to:

Calculation of current assets %,

  $\begin{array}{l}\text{\%}\text{of}\text{cash}\text{and}\text{cash}\text{equivalent}\text{=}\frac{\$21,120}{\$89,378}\times 100\\ =23.6\%\end{array}$

Calculation of current liabilities %,

  $\begin{array}{l}\text{\%}\text{of}\text{cash}\text{and}\text{cash}\text{equivalent}\text{=}\frac{\$21,120}{\$80,610}\times 100\\ =26.2\%\end{array}$

Calculation of shareholder’s equity %,

  $\begin{array}{l}\text{\%}\text{of}\text{cash}\text{and}\text{cash}\text{equivalent}\text{=}\frac{\$21,120}{\$119,355}\times 100\\ =17.7\%\end{array}$

Calculation of net assets %,

  $\begin{array}{l}\text{\%}\text{of}\text{cash}\text{and}\text{cash}\text{equivalent}\text{=}\frac{\$21,120}{\$290,479}\times 100\\ =7.3\%\end{array}$

Percent of cash and cash equivalents on September 27, 2014 proportionate to:

Calculation of current assets %,

  $\begin{array}{l}\text{\%}\text{of}\text{cash}\text{and}\text{cash}\text{equivalent}\text{=}\frac{\$13,844}{\$68,531}\times 100\\ =20.2\%\end{array}$

Calculation of current liabilities %,

  $\begin{array}{l}\text{\%}\text{of}\text{cash}\text{and}\text{cash}\text{equivalent}\text{=}\frac{\$13,844}{\$63,448}\times 100\\ =21.8\%\end{array}$

Calculation of shareholder’s equity %,

  $\begin{array}{l}\text{\%}\text{of}\text{cash}\text{and}\text{cash}\text{equivalent}\text{=}\frac{\$13,844}{\$111,547}\times 100\\ =12.4\%\end{array}$

Calculation of net assets %,

  $\begin{array}{l}\text{\%}\text{of}\text{cash}\text{and}\text{cash}\text{equivalent}\text{=}\frac{\$13,844}{\$231,839}\times 100\\ =6.0\%\end{array}$

2.

To determine

Cash and cash equivalents percentage change in the beginning and ending of the year through the information contained in cash flow statement of September26, 2015 and September27, 2014.

Explanation of Solution

Formula to calculate the percentage change in cash and cash equivalents is,

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

2015

Given,

Cash and cash equivalents in the beginning of 2015 is $13,844.

Cash and cash equivalents at the end of the year is $21,120.

Substitute $13,844 for cash and cash equivalents in the beginning of the 2015 and $21,120 at the end of the year.

  $\begin{array}{l}\text{Percentage}\text{change}=\left(\frac{\left(\$21,120-\$13,844\right)}{\$13,844}\right)\\ =52.6\%\end{array}$

Hence, percentage change represents an increase of 52.6%.

2014

Given,

Cash and cash equivalents in the beginning of 2014 is $14,259

Cash and cash equivalents at the end of the year is $13,844.

Substitute $14,259 for cash and cash equivalents in the beginning of the 2015 and $13,844 at the end of the year.

  $\begin{array}{c}\text{Percentage}\text{change}=\left(\frac{\left(\$13,844-\$14,259\right)}{\$14,259}\right)\\ =-2.9\%\end{array}$

Hence, percentage change represents a decrease of 2.9%.

3.

To determine

Day’s sales uncollected as of September26, 2015 and September27, 2014.

Explanation of Solution

Day’s sales uncollected imply how much days a company takes to collect its accounts receivables.

Formula to calculate day’s sales uncollected is,

  $\text{Day's}\text{sales}\text{uncollected}=\left(\frac{\text{Accounts}\text{receivable}}{\text{Net}\text{sales}}\right)\times 365$

2015

Given,

Accounts receivable is $16,849.

Net sales are $233,715.

Substitute $16,849 for accounts receivable, and $233,715 for net sales.

  $\begin{array}{c}\text{Day's}\text{sales}\text{uncollected}=\left(\frac{\$16,849}{\$233,715}\right)\times 365\\ =0.0720\times 365\\ =26.31\end{array}$

2014

Given,

Accounts receivable is $17,460.

Net sales are $182,795.

Substitute $17,460 for accounts receivable, and $182,795 for net sales.

  $\begin{array}{l}\text{Day's}\text{sales}\text{uncollected}=\left(\frac{\$17,460}{\$182,795}\right)\times 365\\ =0.095\times 365\\ =34.86\\ \end{array}$

Hence, day’s sales uncollected are accounted for 2014 is 34.86 days and for 2015 is 26.31 days.

• Thus, it is concluded that A Company has improved slightly in order to collect its receivable as now it would take 8.55 less days to collect receivables.
• Accounts receivables are important part of the company as it indicates about the turnover. So, company should take steps for its improvements.

4.

To determine

Day’s sales uncollected as of September26, 2015.

Explanation of Solution

Day’s sales uncollected imply how much days a company takes to collect its accounts receivables.

Given info,

Accounts receivable is $16,849

Net sales are $233,715.

Formula to calculate day’s sales uncollected is,

  $\text{Day's}\text{sales}\text{uncollected}=\left(\frac{\text{Accounts}\text{receivable}}{\text{Net}\text{sales}}\right)\times 365$

Substitute $16,849 for accounts receivable and $233,715 for net sales.

  $\begin{array}{c}\text{Day's}\text{sales}\text{uncollected}=\left(\frac{\$16,849}{\$233,715}\right)\times 365\\ =0.072\times 365\\ =26.31\end{array}$

Hence, day’s sales uncollected are accounted for 26.31 days .

Thus, company would take 8.55 more days to collect its receivables in the year 2015 as compared to 2014.