Amicus Therapeutics, Inc., is a biopharmaceutical company that develops drugs for the treatment of various diseases, including Parkinson’s disease

Amicus Therapeutics, Inc., is a biopharmaceutical company that develops drugs for the treatment of various diseases, including Parkinson’s disease. Amicus Therapeutics reported the following financial data (in thousands) for three recent years:

For Years Ended December 31 Year 3 Year 2 Year 1 Cash and cash equivalents $  69,485 $ 24,074 $  43,640 Net cash flows from operations (100,139) (51,669) (45,794) 

a. Determine the monthly cash expenses for Year 3, Year 2, and Year 1. Round to one decimal place.

b. Determine the ratio of cash to monthly cash expenses for Year 3, Year 2, and Year 1 as of December 31. Round to one decimal place.

c. Based on (a) and (b), comment on Amicus Therapeutics’ ratio of cash to monthly operating expenses for Year 3, Year 2, and Year 1.

Answer:

a. 

Year 3:  $8,344.9 per month ($100,139 ÷ 12)

Year 2:  $4,305.8 per month ($51,669 ÷ 12)

Year 1:  $3,816.2 per month ($45,794 ÷ 12)

b. 

Year 3:  8.3 months ($69,485 ÷ $8,344.9)

Year 2:  5.6 months ($24,074 ÷ $4,305.8)

Year 1:  11.4 months ($43,640 ÷ $3,816.2)

c. 

At the end of Year 1, Amicus Therapeutics had 11.4 months of cash and cashequivalents remaining to use in operations. 

At the end of Year 2, Amicus had 5.6 months of cash and cash equivalents to use in operations. However, during Year 2, Amicus issued over $130 million of common stock, which was used to purchase short-term investments of $128 million. If the short-term investments of $128 million are included as being available to convert to cash, Amicus has 35.3 months of available cash to use in operations at the end of Year 2.

At the end of Year 3, Amicus had 8.3 months of cash and cash equivalents to use in operations. However, during Year 3, Amicus issued over $256 million of additional stock and at the end of Year 3 had short-term investments of $145 million. If the short-term investments of $145 million are included as being available to convert to cash, Amicus has 25.7 months of available cash to use in operations at the end of Year 3. 

Overall, Amicus has been able to support its operations by issuing additional stock. However, its negative cash flows have increased from $(45,794) in Year 1 to $(100,139) in Year 3. Unless Amicus had generated positive cash flows from operations, its ability to continue raising funds from issuing stock or debt will be limited. Thus, in the long run, Amicus must generate positive cash flows from operations to survive.

Capstone Turbine Corporation produces and sells turbine generators for such applications as charging electric, hybrid vehicles

Capstone Turbine Corporation produces and sells turbine generators for such applications as charging electric, hybrid vehicles. Capstone Turbine reported the following financial data for a recent year (in thousands):

Net cash flows from operating activities $(23,018)

Cash and cash equivalents 32,221

a. Determine the monthly cash expenses. Round to one decimal place.

b. Determine the ratio of cash to monthly cash expenses. Round to one decimal place.

c.  Based on your analysis, do you believe that Capstone Turbine will remain in business?

Answer:

a. $1,918.2 ($23,018 ÷ 12)

b. 16.8 months ($32,221 ÷ $1,918.2)

c. Capstone Turbine has cash to continue its operations for approximately 16.8 months.

Journalize the entries to record the following: a. Check is issued to establish a petty cash fund of $750.

Journalize the entries to record the following:

a. Check is issued to establish a petty cash fund of $750.

b. The amount of cash in the petty cash fund is now $176. Check is issued to replenish the fund, based on the following summary of petty cash receipts: office supplies, $248; miscellaneous selling expense, $212; miscellaneous administrative expense, $96. 

(Because the amount of the check to replenish the fund plus the balance in the fund do not equal $750, record the discrepancy in the cash short and over account.)

Answer:

a. 

Petty Cash 750

                 Cash 750

b. 

Office Supplies                      248

Miscellaneous Selling Expense        212

Miscellaneous Administrative Expense  96

Cash Short and Over                   18

         Cash                                 574

Mattel, Inc., designs, manufactures, and markets toy products worldwide. Mattel’s toys include Barbie® fashion dolls and accessories, Hot Wheels®, and Fisher-Price brands

Mattel, Inc., designs, manufactures, and markets toy products worldwide. Mattel’s toys include Barbie® fashion dolls and accessories, Hot Wheels®, and Fisher-Price brands. For a recent year, Mattel reported the following net cash flows from operating activities (in thousands):

First quarter ending March 31 $  (53,110)

Second quarter ending June 30 (187,663)

Third quarter ending September 3018,435

Fourth quarter ending December 31956,895

Explain why Mattel reported negative net cash flows from operating activities during the first and second quarters and a large positive cash flow for the fourth quarter, with overall net positive cash flow for the year.

Answer:

Toy manufacturers and retailers experience a seasonal trend in cash flows from operating activities. Mattel, Inc., experiences negative cash flows during the periods when merchandise is ordered and produced for the holiday season. Mattel, Inc., generates large positive cash flows during the holiday season, November–December. As a result, Mattel, Inc., reports overall positive net cash flows from operating activities for the year.

El Dorado Inc. has monthly cash expenses of $168,500. On December 31, the cash balance is $1,415,400.

El Dorado Inc. has monthly cash expenses of $168,500. On December 31, the cash balance is $1,415,400.

a. Compute the ratio of cash to monthly cash expenses.

b.  Based on (a), what are the implications for El Dorado Inc.?

Answer:

a. 8.4 months ($1,415,400 ÷ $168,500)

b. At the current rate of operations, El Dorado has 8.4 months of cash remaining. El Dorado should either restructure its operations or plan on raising additional financing in order to continue in business.

Alaska Impressions Co. records all cash receipts on the basis of its cash register tapes.

Alaska Impressions Co. records all cash receipts on the basis of its cash register tapes. Alaska Impressions Co. discovered during October that one of its salesclerks had stolen an undetermined amount of cash receipts while taking the daily deposits to the bank. 

The following data have been gathered for October:

Cash in bank according to the general ledger $11,680

Cash according to the October 31 bank statement 13,275

Outstanding checks as of October 313,670

Bank service charge for October 40

Note receivable, including interest collected by bank in October 2,100

No deposits were in transit on October 31.

a. Determine the amount of cash receipts stolen by the salesclerk.

b. What accounting controls would have prevented or detected this theft?

Answer:

a. The amount of cash receipts stolen by the salesclerk can be determined by attempting to reconcile the bank account. The bank reconciliation will not reconcile by the amount of cash receipts stolen. The amount stolen by the salesclerk is $4,135, determined as shown below.

Cash balance according to bank statement$13,275 Deduct outstanding checks3,670 Adjusted balance$ 9,605 Cash balance according to company’s records$11,680 Add note and interest collected by bank2,100 Deduct bank service charges40 Adjusted balance$13,740

Amount stolen: $4,135 ($13,740 – $9,605)

b. The theft of the cash receipts might have been prevented by having more than one person make the daily deposit. Two individuals would then have been necessary to steal cash receipts. In addition, two employees making the daily cash deposits would tend to discourage theft of the cash receipts from the employees on the way to the bank.

Daily reconciliation of the amount of cash receipts—comparing the cash register tapes to a receipt from the bank as to the amount deposited (a duplicate deposit ticket)—would also discourage theft of the cash receipts. In this latter case, if the reconciliation were prepared by an employee independent of the cash function, any theft of cash receipts from the daily deposit would be discovered immediately. That is, the daily deposit would not reconcile against the daily cash receipts.

The following June 30 bank reconciliation was prepared for Poway Co.a. Identify the errors in the following bank reconciliation:

The following June 30 bank reconciliation was prepared for Poway Co.

Poway Co. Bank Reconciliation For the Month Ended June 30 Cash balance according to bank statement . . . . . . . . . . . . . . . . . . . . . . . . . . $16,185 Add outstanding checks: No. 1067. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $  575 1106. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 470 1110. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,050 1113. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      910      3,005 $19,190 Deduct deposit of June 30, not recorded by bank . . . . . . . . . . . . . . . . . . . . 6,600 Adjusted balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,590 Cash balance according to company’s records . . . . . . . . . . . . . . . . . . . . . . . $ 8,985 Add: Proceeds of note collected by bank: Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,000 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      300 $6,300 Service charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        15      6,315 $15,300 Deduct: Check returned because of insufficient funds . . . . . . . . . . . . . . . . $   890 Error in recording June 17 deposit of $7,150 as $1,750 . . . . . . .  5,400 6,290 Adjusted balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,010

a. Identify the errors in the following bank reconciliation:

b. Prepare a new bank reconciliation for Poway Co., using the format shown in the illustrative problem.

Answer:

a. 

1. The heading should be “June 30,” and not “For the Month Ended June 30.”

2. The outstanding checks should be deducted from the balance per bank.

3. The deposit of June 30, not recorded by the bank, should be added to the balance per bank.

4. Service charges should be deducted from the balance per company’s records.

5. The error in recording the June 17 deposit of $7,150 as $1,750 should be added to the balance per company’s records.

6. The adjusted balances ($12,590 and $9,010) are not equal.

b. A correct bank reconciliation would be as follows: Cash balance according to bank statement$16,185 Add deposit of June 30, not recorded by bank6,600 Deduct outstanding checks: No. 1067$ 575 1106470 11101,050 1113910 3,005 Adjusted balance$19,780 Cash balance according to company’s records$ 8,985 Add: Note and interest collected by bank $6,300 Error in recording June 17 deposit as $1,750 instead of $7,1505,400 11,700 Deduct: Check returned because of insufficient funds $ 890 Service charges15 905 Adjusted balance$19,780

An accounting clerk for Chesner Co. prepared the following bank reconciliation:From the data in this bank reconciliation

An accounting clerk for Chesner Co. prepared the following bank reconciliation:

Chesner Co. Bank Reconciliation August 31 Cash balance according to company’s records . . . . . . . . . . . . . . . . . . . . . . . $11,100 Add: Outstanding checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,585

Error by Chesner Co. in recording Check No. 1056 as $950 instead of $590 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360 Note for $12,000 collected by bank, including interest . . . . . . . . . .   12,480   16,425 $27,525 Deduct: Deposit in transit on August 31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,200 Bank service charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           25 7,225 Cash balance according to bank statement . . . . . . . . . . . . . . . . . . . . . . . . . . $20,300

a. From the data in this bank reconciliation, prepare a new bank reconciliation for Chesner Co., using the format shown in the illustrative problem.

b. If a balance sheet is prepared for Chesner Co. on August 31, what amount should be reported for cash?

Answer:

a. Cash balance according to bank statement$20,300 Add deposit in transit on August 317,200 Deduct outstanding checks3,585 Adjusted balance$23,915 Cash balance according to company’s records$11,100 Add: Error in recording Check No. 1056 as $950 instead of $590$ 360 Note for $12,000 collected by bank, including interest12,480 12,840 Deduct bank service charges25 Adjusted balance$23,915 b.$23,915

Using the data presented in Exercise 8-18, journalize the entry or entries that should be made by the company.

Using the data presented in Exercise 8-18, journalize the entry or entries that should be made by the company.

Answer:

July 31 Cash540 Accounts Payable540 31 Miscellaneous Expense20 Cash20

Accompanying a bank statement for Santee Company is a credit memo for $15,120 representing the principal ($14,000) and interest ($1,120)

Accompanying a bank statement for Santee Company is a credit memo for $15,120 representing the principal ($14,000) and interest ($1,120) on a note that had been collected by the bank. The company had been notified by the bank at the time of the collection but had made no entries. Journalize the entry that should be made by the company to bring the accounting records up to date.

Answer:

Cash              15,120

        Notes Receivable  14,000

        Interest Revenue   1,120

The following data were accumulated for use in reconciling the bank account of Mathers Co. for July:

The following data were accumulated for use in reconciling the bank account of Mathers Co. for July:

1. Cash balance according to the company’s records at July 31, $32,110.

2. Cash balance according to the bank statement at July 31, $31,350.

3. Checks outstanding, $2,870.

4. Deposit in transit, not recorded by bank, $4,150.

5. A check for $170 in payment of an account was erroneously recorded in the check register as $710.

6. Bank debit memo for service charges, $20.

a.  Prepare a bank reconciliation, using the format shown in Exhibit 13.

b. If the balance sheet is prepared for Mathers Co. on July 31, what amount should be reported for cash?

c.  Must a bank reconciliation always balance (reconcile)?

Answer:

a.Cash balance according to bank statement$31,350

Add deposit in transit, not recorded by bank4,150 Deduct outstanding checks2,870 Adjusted balance$32,630 Cash balance according to company’s records$32,110 Add error in recording check as $710 instead of $170540 Deduct bank service charge20 Adjusted balance$32,630 b. $32,630; the adjusted balance from the bank reconciliation should be reported on the July 31 balance sheet for Mathers Co. c. Yes. The bank reconciliation must always balance (reconcile) to an adjusted balance.

Identify each of the following reconciling items as: (a) an addition to the cash balance according to the bank statement,

Identify each of the following reconciling items as: (a) an addition to the cash balance according to the bank statement, (b) a deduction from the cash balance according to the bank statement, (c) an addition to the cash balance according to the company’s records, or (d) a deduction from the cash balance according to the company’s records. (None of the transactions reported by bank debit and credit memos have been recorded by the company.)

1. Bank service charges, $30.

2. Check of a customer returned by bank to company because of insufficient funds, $400.

3. Check for $320 incorrectly recorded by the company as $230.

4. Check for $1,100 incorrectly charged by bank as $110.

5. Deposit in transit, $3,300.

6. Outstanding checks, $7,950.

7. Note collected by bank, $10,500.

Answer:

a. Addition to the balance per bank: (5)

b. Deduction from the balance per bank: (4), (6)

c. Addition to the balance per company’s records: (7)

d. Deduction from the balance per company’s records: (1), (2), (3)

Which of the reconciling items listed in Exercise 8-16 require an entry in the company’s accounts?

Which of the reconciling items listed in Exercise 8-16 require an entry in the company’s accounts?

Answer:

(1), (2), (3), (7)

The preceding additions and deductions to the cash balance according to the company’s records require journal entries in the company’s records. Additions and deductions to the cash balance according to the bank’s records do not require the company to record journal entries.

Abbe Co. is a small merchandising company with a manual accounting system. An investigation revealed that in spite of a sufficient bank balance

Abbe Co. is a small merchandising company with a manual accounting system. An investigation revealed that in spite of a sufficient bank balance, a significant amount of available cash discounts had been lost because of failure to make timely payments. In addition, it was discovered that the invoices for several purchases had been paid twice.

Outline procedures for the payment of vendors’ invoices so that the possibilities of losing available cash discounts and of paying an invoice a second time will be minimized.

Answer:

The use of the voucher system is appropriate, the essentials of which are outlined below. (Although invoices could be used instead of vouchers, vouchers more satisfactorily provide for account distribution, signatures, and other significant data.)

1. Each voucher should be approved for payment by a designated official only after completion of the following verifications: (a) that prices, quantities, terms, etc., on the invoice are in accordance with the provisions of the purchase order; (b) that all quantities billed have been received in good condition, as indicated on a receiving report; and (c) that all arithmetic details are correct.

2. The file for unpaid vouchers should be composed of 31 compartments, one for each day of the month. Each voucher should be filed in the compartment representing the last day of the discount period or the due date if the invoice is not subject to a cash discount.

3. Each day, the vouchers should be removed from the appropriate section of the file and checks issued by the disbursing official. If the bank balance is insufficient to pay all of the vouchers, those that remain unpaid should be refiled according to the date when payment should next be considered.

4. At the time of payment, all vouchers and supporting documents should be stamped or perforated “Paid” to prevent their resubmission for payment. They should then be filed in numerical sequence for future reference. The implementation and use of a computerized system would also reduce the chance that any available cash discounts are missed. For example, when invoices are received and approved for payment, they are automatically scheduled for payment within the discount period. However, even in a computerized system, the use of an approval process that requires supporting documents and indicating “paid” on these supporting documents is an important control for avoiding duplicate payments.

Paragon Tech Company, a communications equipment manufacturer, recently fell victim to a fraud scheme developed by one of its employees

Paragon Tech Company, a communications equipment manufacturer, recently fell victim to a fraud scheme developed by one of its employees. To understand the scheme, it is necessary to review Paragon Tech’s procedures for the purchase of services.

The purchasing agent is responsible for ordering services (such as repairs to a photocopy machine or office cleaning) after receiving a service requisition from an authorized manager. However, because no tangible goods are delivered, a receiving report is not prepared. When the Accounting Department receives an invoice billing Paragon Tech for a service call, the accounts payable clerk calls the manager who requested the service in order to verify that it was performed.

The fraud scheme involves Mae Jansma, the manager of plant and facilities. Mae arranged for her uncle’s company, Radiate Systems, to be placed on Paragon Tech’s approved vendor list. Mae did not disclose the family relationship.

On several occasions, Mae would submit a requisition for services to be provided by Radiate Systems. However, the service requested was really not needed, and it was never performed. Radiate Systems would bill Paragon Tech for the service and then split the cash payment with Mae.

Explain what changes should be made to Paragon Tech’s procedures for ordering and paying for services in order to prevent such occurrences in the future.

Answer:

To prevent the fraud scheme described, Paragon Tech must separate responsibilities for related operations. As in the past, all service requisitions should be submitted to the Purchasing Department. After receiving the service request, Purchasing should complete a Service Verification form stating the service that has been ordered and the name of the company that will provide the service. This form should be delivered via intercompany mail to the person responsible for verifying that the service was performed. This person should have firsthand knowledge of whether the service was performed. This person, who must be someone other than the manager requesting the service, should fill in the date and time the service was received and sign the form. In addition, the vendor providing the service should sign the form before leaving the premises. When completed, the Service Verification form should be forwarded to the Accounting Department. Accounting will authorize payment of the vendor’s invoice after the Service Verification form has been compared with the invoice.

The actual cash received from cash sales was $18,371, and the amount indicated by the cash register total was $18,400

The actual cash received from cash sales was $18,371, and the amount indicated by the cash register total was $18,400. Journalize the entry to record the cash receipts and cash sales.

Answer:

Cash                  18,371

Cash Short or Over        29

            Sales                 18,400

The actual cash received from cash sales was $71,315, and the amount indicated by the cash register total was $71,220

The actual cash received from cash sales was $71,315, and the amount indicated by the cash register total was $71,220. Journalize the entry to record the cash receipts and cash sales.

Answer:

Cash                71,315

            Sales               71,220

            Cash Short or Over      95

Abbe Co. is a small merchandising company with a manual accounting system. An investigation revealed that in spite of a sufficient bank balance

Abbe Co. is a small merchandising company with a manual accounting system. An investigation revealed that in spite of a sufficient bank balance, a significant amount of available cash discounts had been lost because of failure to make timely payments. In addition, it was discovered that the invoices for several purchases had been paid twice.

Outline procedures for the payment of vendors’ invoices so that the possibilities of losing available cash discounts and of paying an invoice a second time will be minimized.

Answer:

The use of the voucher system is appropriate, the essentials of which are outlined below. (Although invoices could be used instead of vouchers, vouchers more satisfactorily provide for account distribution, signatures, and other significant data.)

1. Each voucher should be approved for payment by a designated official only after completion of the following verifications: (a) that prices, quantities, terms, etc., on the invoice are in accordance with the provisions of the purchase order; (b) that all quantities billed have been received in good condition, as indicated on a receiving report; and (c) that all arithmetic details are correct.

2. The file for unpaid vouchers should be composed of 31 compartments, one for each day of the month. Each voucher should be filed in the compartment representing the last day of the discount period or the due date if the invoice is not subject to a cash discount.

3. Each day, the vouchers should be removed from the appropriate section of the file and checks issued by the disbursing official. If the bank balance is insufficient to pay all of the vouchers, those that remain unpaid should be refiled according to the date when payment should next be considered.

4. At the time of payment, all vouchers and supporting documents should be stamped or perforated “Paid” to prevent their resubmission for payment. They should then be filed in numerical sequence for future reference. The implementation and use of a computerized system would also reduce the chance that any available cash discounts are missed. For example, when invoices are received and approved for payment, they are automatically scheduled for payment within the discount period. However, even in a computerized system, the use of an approval process that requires supporting documents and indicating “paid” on these supporting documents is an important control for avoiding duplicate payments.

Sergio Flores works at the drive-through window of Big & Bad Burgers. Occasionally, when a drive-through customer orders

Sergio Flores works at the drive-through window of Big & Bad Burgers. Occasionally, when a drive-through customer orders, Sergio fills the order and pockets the customer’s money. He does not ring up the order on the cash register.

Identify the internal control weaknesses that exist at Big & Bad Burgers and discuss what can be done to prevent this theft.

Answer:

Big & Bad Burgers suffers from a failure to separate responsibilities for related operations.

Big & Bad Burgers could stop this theft by limiting the drive-through clerk to taking customer orders, entering them on the cash register, accepting the customers’ payments, returning customers’ change, and handing customers their orders that another employee has assembled. By making another employee responsible for assembling orders, the drive-through clerk must enter the orders on the cash register. This will produce a printed receipt or an entry on a computer screen at the food bin area, specifying the items that must be assembled to fill each order. Once the drive-through clerk has entered the sale on the cash register, the clerk cannot steal the customer’s payment because the clerk’s cash drawer will not balance at the end of the shift. This change also makes the drive-through more efficient and could reduce the time it takes to service a drive-through customer.

If another employee cannot be added, the weakness in internal control could be improved with more thorough supervision. The restaurant manager should be directed to keep a watchful eye on the drive-through area in order to detect when a clerk takes an order without ringing up the sale.

Another option is for Big & Bad Burgers to implement a policy that any customer who does not receive a receipt is entitled to a free burger and advertise this policy at thecash register and drive-through window. This approach uses the customer as an internal control.

The mailroom employees send all remittances and remittance advices to the cashier. The cashier deposits the cash in the bank

The mailroom employees send all remittances and remittance advices to the cashier. The cashier deposits the cash in the bank and forwards the remittance advices and duplicate deposit slips to the Accounting Department.

a. Indicate the weak link in internal control in the handling of cash receipts.

b. How can the weakness be corrected?

Answer:

a. The remittance advices should not be sent to the cashier.

b. The mailroom employees should send the remittance advices directly to the Accounting Department.