Loose Leaf for Fundamentals of Accounting Principles and Connect Access Card
Loose Leaf for Fundamentals of Accounting Principles and Connect Access Card
22nd Edition
ISBN: 9781259542169
Author: John J Wild
Publisher: McGraw-Hill Education
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Chapter 8, Problem 9BTN

1)

To determine

Introduction:

Cash and Cash Equivalents

  • Cash and Cash equivalents are current assets that form part of the balance sheets and represent the liquid assets of the business. Liquid assets are assets that are readily convertible to cash.

  • Cash and Cash Equivalents comprise of Cash and Bank Balances, Short term investments, Treasury Bills etc. Current Assets are assets that are convertible to cash in a period of one year or less.

  • The cash flow statements explain the change in cash and cash equivalents of the business for the reporting period by tracking the changes in cash flows from Operating Activities, Investing Activities and Financing Activities for the reporting period.

To Determine:

Compare Cash and Cash equivalents with Current Assets, Total Assets, Current Liabilities and Shareholders’ Equity for the current year as well as with corresponding amounts of previous year

1)

Expert Solution
Check Mark

Answer to Problem 9BTN

Solution:

    KRW Millions Current YearPrior Year
     
     
     
    Cash and Cash Equivalents
    16,284,780
    18,791,460
     
     
     
    Current Assets
    110,760,271
    87,269,017
     
     
     
    Proportion of Cash and Cash Equivalents to Current Assets
    14.70%
    21.53%
     
     
     
    Total Assets
    214,075,018
    181,071,570
     
     
     
    Proportion of Cash and Cash Equivalents to Total Assets
    7.61%
    10.38%
     
     
     
    Current Liabilities
    51,315,409
    46,933,052
     
     
     
    Proportion of Cash and Cash Equivalents to Current Liabilities
    31.73%
    40.04%
     
     
     
    Shareholders' Equity
    150,016,010
    121,480,206
     
     
     
    Proportion of Cash and Cash Equivalents to Shareholders' Equity
    10.86%
    15.47%

Explanation of Solution

  • The Cash and cash equivalents consist of short term investments, cash and bank balances and other such current assets that are readily convertible to cash and are liquid in nature. The proportion of cash and cash equivalents to current assets defines the composition of the current assets, i.e. how much of the current assets consist of cash and non-cash current assets.

  • Cash and Cash Equivalents have reduced to KRW 16,284,780 Million from KRW 18,791,460 million indicating a year on year decrease of KRW 2,506,680 Million. The changes in the cash and cash equivalents are explained by the cash flow statements.

  • Current Assets have increased to KRW 110,760,271 Million from KRW 87,269,017 Million indicating an increase of KRW 23,491,254 Million year on year. This change in current assets comprises of changes in value of inventory, accounts receivables etc.

  • Proportion of Cash and Cash Equivalents to Current Assets is calculated by dividing the cash and cash equivalents for they the total current assets. The proportion of cash and cash equivalents for they the total current assets for the Current year is 14.70% and for the Prior year is 21.53% indicating a decrease of 6.83%, despite the total value of current assets increasing.

  • Total Assets have increased to KRW 214,075,018 Million from KRW 181,071,570 Million indicating an increase of KRW 33,003,448 Million year on year. This change in Total Assets comprises of changes in value of inventory, accounts receivables etc. as well as cash and cash equivalents.

  • Proportion of Cash and Cash Equivalents to Total Assets is calculated by dividing the cash and cash equivalents for they the Total Assets. The proportion of cash and cash equivalents for they the Total Assets for the Current year is 7.61% and for the Prior year is 10.38% indicating a decrease of 2.77%, despite the total value of Total Assets increasing.

  • Current Liabilities have increased to KRW 51,315,409 Million from KRW 46,933,052 Million indicating an increase of KRW 4,382,357 Million year on year. This change in Current Liabilities comprises of changes in value of short term liabilities, accounts payables etc.

  • Proportion of Cash and Cash Equivalents to Current Liabilities is calculated by dividing the cash and cash equivalents for they the total Current Liabilities. The proportion of cash and cash equivalents for they the total Current Liabilities for the Current year is 31.73% and for the Prior year is 40.04% indicating a decrease of 8.3%, despite the total value of Current Liabilities increasing. This indicates reduced ability to repay current liabilities.

  • Shareholder’s Equity has increased to KRW 150,016,010 Million from KRW 121,480,206 Million indicating an increase of KRW 28,535,804 Million year on year. This change in Shareholder’s Equity comprises of changes in value of common stock and retained earnings

  • Proportion of Cash and Cash Equivalents to Shareholder’s Equity is calculated by dividing the cash and cash equivalents for they the total Shareholder’s Equity. The proportion of cash and cash equivalents for they the total Shareholder’s Equity for the Current year is 10.86% and for the Prior year is 15.47% indicating a decrease of 4.61%, despite the total value of Shareholder’s Equity increasing.

  • The reduction in Cash and Cash Equivalents despite the increase in current assets indicates an adverse liquidity position since the increase in current assets corresponds to increase in non-cash assets such as accounts receivable, inventory etc.

Conclusion

Hence the Cash and Cash equivalents have been compared with Current Assets, Total Assets, Current Liabilities and Shareholders’ Equity for the current year as well as with corresponding amounts of previous year and variances have been explained.

2)

To determine

Introduction:

Cash and Cash Equivalents

  • Cash and Cash equivalents are current assets that form part of the balance sheets and represent the liquid assets of the business. Liquid assets are assets that are readily convertible to cash.

  • Cash and Cash Equivalents comprise of Cash and Bank Balances, Short term investments, Treasury Bills etc. Current Assets are assets that are convertible to cash in a period of one year or less.

  • The cash flow statements explain the change in cash and cash equivalents of the business for the reporting period by tracking the changes in cash flows from Operating Activities, Investing Activities and Financing Activities for the reporting period.

To Determine:

Percentage change in beginning and ending amounts of cash and cash equivalents for the current year and prior year

2)

Expert Solution
Check Mark

Answer to Problem 9BTN

Solution:

    KRW Millions Current YearPrior Year
     
     
     
    Cash and Cash Equivalents at the end of the year
    16,284,780
    18,791,460
     
     
     
    Change in Cash and Cash Equivalents during the year
    2,506,680

     
     
     
    Proportion of change in Cash and Cash Equivalents to Opening Values of cash and Cash Equivalents
    13.33%

Explanation of Solution

  • The Cash and cash equivalents consist of short term investments, cash and bank balances and other such current assets that are readily convertible to cash and are liquid in nature. The proportion of cash and cash equivalents to current assets defines the composition of the current assets, i.e. how much of the current assets consist of cash and non-cash current assets.

  • Cash and Cash Equivalents have reduced to KRW 16,284,780 Million from KRW 18,791,460 million indicating a year on year decrease of KRW 2,506,680 Million. The changes in the cash and cash equivalents are explained by the cash flow statements.

  • The percentage change in the proportion of change in Cash and Cash Equivalents to Opening Values of cash and Cash Equivalents is calculated by dividing the change in Cash and Cash Equivalents by Opening Values of cash and Cash Equivalents.

  • The percentage change for the current year is 13.33%. There is a significant decrease in the proportion of the cash and cash equivalents on a yearly basis indicating lower conversion of non-current assets to cash and cash equivalents.

Conclusion

Hence the percentage changes in beginning and ending amounts of cash and cash equivalents for the current year have been analyzed and explained.

3)

To determine

Introduction:

Ratio Analysis

  • Ratio analysis is a study of several key metrics of a company based on the data presented in its’ financial statements with an objective to evaluate the financial health of a company.

  • It is essential for investors, stakeholders, government bodies etc. to evaluate the key metrics of an entity in order to ensure that the company fulfills the going concern principle and displays financial stability.

The key metrics mentioned above include the following:

  • Days’ sales uncollected − A measure of the total outstanding collections for credit sales in number of days.

  • It is a measure used by companies to calculate their average collection period and understand how well accounts receivables are being managed.

  •   Days sale uncollected = Accounts Receivable / Average Sales per Day

To Determine:

Days sales uncollected for current and prior year.

3)

Expert Solution
Check Mark

Answer to Problem 9BTN

Solution:

     Samsung
     Current Year Prior Year
    Accounts Receivable
    27,875,934.00
    26,674,596.00
     
     
     
    Net Sales
    228,692,667.00
    201,103,613.00
     
     
     
    Average Sales Per Day
    626,555.25
    550,968.80
     
     
     
    Days Sales Uncollected
    44.5
    48.4

Explanation of Solution

  • Days Sales Uncollected is calculated as Accounts' Receivable / Average Sales per Day. In order to calculate the sales per day, Total sales for the year are divided by 365.

  • Accounts Receivable has increased to KRW Million 27,875,934.00 in the current year from KRW Million 26,674,596.00 in the prior year. The yearly increase is KRW Million 1,201,338.

  • Net Sales has increased to KRW Million 228,692,667.00 in the current year from KRW Million 201,103,613.00 in the prior year. The yearly increase is KRW Million 27,589,054

  • The ratio of Days sales uncollected for Samsung has increased from 48.40 days in the prior year to almost 44.5 days in the current year indicating a decrease in the days’ sales uncollected on a yearly basis. The change in percentage of Days sales uncollected of Samsung year on year is 8.82% [ (48.4 − 44.5 ) / 48.4 x 100 ]

  • A decrease in the day’s sales uncollected indicates an increase in the overall cash flow position as well as collection of accounts receivable outstanding as the ratio between accounts receivable and days’ sales uncollected is inverse i.e. an increase in days’ sales uncollected indicates a delay in collection of accounts receivable and vice versa.

  • The decrease in days’ sales uncollected indicates an increase the liquidity position since the sales and accounts receivables have both increased year on year yet the days sales uncollected has decreased.

Conclusion

Hence the Days sales Uncollected are calculated for the current and prior years

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