Chapter 6: Accounting Analysis

This Company Analysis and related exercises involve detailed financial analysis, internal controls, and ethical considerations. Here's a breakdown and summary of the tasks at hand: Apple Financial Statement Analysis 1. Cash and Cash Equivalents for Fiscal Years Ended 2019 and 2018: o You need to extract the total amount of cash and cash equivalents for both September 28, 2019, and September 29, 2018, from Apple's financial statements in Appendix A. 2. Cash as a Percent of Key Metrics: o Calculate cash and cash equivalents as a percentage of total current assets, total current liabilities, total shareholders’ equity, and total assets for both 2019 and 2018. 3. Percent Change in Cash Balances: o Compute the percentage change between the beginning and ending year amounts of cash and cash equivalents from 2018 to 2019. The beginning balance for 2018 is $20,289 million. 4. Days’ Sales Uncollected: o Compute days’ sales uncollected for September 28, 2019, and September 29, 2018, by dividing the ending receivables balance by sales and multiplying by 365. 5. Receivables Collection Change: o Assess whether Apple’s collection of receivables has shown a favorable or unfavorable change based on the days’ sales uncollected. Comparative Analysis of Apple and Google • Compute days’ sales uncollected for both Apple and Google for the current and prior years. Determine which company had better success in collecting receivables based on the calculated figures. Samsung Financial Analysis 1. Cash as a Percent of Key Metrics: o Compute cash and cash equivalents as a percentage of total current assets, total assets, total current liabilities, and total shareholders’ equity for both years. 2. Percent Change in Cash Balances: o Calculate the percentage change in cash balances between the current and prior years. 3. Days’ Sales Uncollected: o Compute Samsung’s days’ sales uncollected at the end of both the current and prior years. 4. Receivables Collection: o Evaluate whether Samsung's collection of receivables has shown a favorable or unfavorable trend. Discussion Questions on Internal Control 1. Seven Broad Principles of Internal Control: o These include segregation of duties, establishment of responsibilities, documentation, physical controls, independent internal verification, human resource controls, and the use of electronic controls. 2. Critical Stage for Internal Controls: o Internal controls become especially critical during growth and expansion when business transactions increase, and more employees are involved. 3. Separation of Duties: o Dividing responsibility for related transactions prevents fraud and errors by ensuring no single person has control over all aspects of a transaction. 4. Custody vs. Recordkeeping: o The person responsible for an asset’s custody should not maintain the records to prevent fraudulent activity. 5. Departmental Supplier Relations: o Preventing departments from directly dealing with suppliers ensures purchasing is controlled and properly documented. 6. Limitations of Internal Controls: o Limitations include human error, management override, collusion among employees, and the cost of implementing controls. Additional Questions 7. Most and Least Liquid Assets: o Most liquid: Cash; Least liquid: Building. 8. Petty Cash Receipt: o A small receipt documenting a petty cash transaction, signed by the person who receives the cash. 9. Importance of Daily Deposits: o Ensures that cash receipts are secured and recorded promptly, reducing the risk of theft or misplacement. 10. Franco Co. Internal Control Failures: o Evaluate internal control weaknesses, such as lack of segregation of duties and poor oversight, leading to a $184,000 loss. 11. Internal Control Recommendations: o For concession and antique store scenarios, introduce controls such as daily reconciliation and documentation for all transactions, along with proper supervision. 12. Cash Receipts with Mail: Problem: The recordkeeper opens the mail and deposits cash, creating a risk of misappropriation. Solution: Separate duties by assigning different employees for opening mail and making deposits. 13. Investment in Cash Equivalents: o Companies invest idle cash in cash equivalents to earn a return while maintaining liquidity. 14. Voucher System of Control: o Establishes control over payments and approvals, with vouchers prepared upon purchase authorization and updated when the payment is made. o Ethics Challenge (Dr. Conrad’s Office) • Suggest ways to detect fraud and implement tighter controls, such as regular bank reconciliations, surprise audits, and segregating duties related to cash handling and recording. Communicating in Practice • Write a memo advising a business owner on monitoring purchase discounts, suggesting alternatives like automated systems to track early payments. Teamwork and Entrepreneurial Decision • • For the retail store controls exercise, teams can list internal controls such as inventory checks, cash register procedures, and customer service policies to prevent theft or fraud. As a retail outlet expands, it will need to add new internal controls to handle increased complexity in operations, larger staff, and more transactions.