Chapter 6, Problem 3.2AA

a.

To determine

Vertical Analysis:

In vertical analysis, every line item is represented as a percentage of a base amount which can be either total assets, total liabilities, total equities, etc.

Requirement 1

To compute:

Cash as a percentage of total current assets, total current liabilities, total stockholders’ equity, and total assets for the current year and prior year.

b.

To determine

Horizontal Analysis:

In horizontal analysis, a single line item is represented and compared as a percentage change from one base year to the subsequent years.

Requirement 2

To compute:

Percentage change between the beginning and ending cash balances for the current year.

c.

To determine

Days’ sales uncollected:

This ratio defines how fast a company converts its receivable into known amounts of cash. The lesser the ratio is, the better it is for the company as it will prove that the company employs an efficient system of cash collection from customers.

Requirement 3

To compute:

The days’ sales uncollected for both the current and prior year.

d.

To determine

Changes in Days’ sales uncollected:

The changes in the ratio of days’ sales uncollected will greatly impact the liquidity problem of the entity. If it is reduced, the company is considered to be efficiently managing its cash collection mechanism or in case, it is increased, the otherwise will follow.

Requirement 4

Whether S’s receivables collection is showing a favorable or unfavorable change.