Apple Computer Inc. is best known for its iMac, iPod, and iPad product lines. Three recent years produced a combination of dramatic increases in sales revenue and profit. Cash flows from operations declined during the period, however. Contributing to that declining cash flow was the change in trade receivables. The current and prior year statements of financial position reported the following:

Required:
1. How would the change in trade receivables affect cash flow from operations for the current year? Explain why it would have this effect.
2. Explain how increasing sales revenue often leads to

(a) increasing trade receivables and

(b) an excess of sales revenue over collections from customers.
3. The company reported \(\$ 32,479\) million in net sales for the current year. Compute the trade receivables turnover ratio and the average collection period for the current year. Are the computed numbers useful to an investor? Explain.

Transcribed Image Text:

Trade receivables, less allowance for doubtful accounts (in millions) Current Year $2,422 Previous Year $1.637