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165
MBA 5–3
1. Year 4 Year 3 Year 2 Year 1
Monthly cash expenses:
2. Ratio of cash to monthly
cash expenses:
$6,211 ÷ $(675) ................................ 9.2 months
3. Ratio of cash to monthly
cash expenses:
4. Kips Bay Medical has reported losses and negative cash flows from opera-
5. Based upon the preceding results in (2) and (3), an investment in Kips Bay
166
MBA 5–4
1. Boston Scientific generates positive cash flows from its operations of $1,269
2. The computation of the ratio of cash to monthly cash expenses would not be
167
CASES
Case 5–1
Acceptable business and professional conduct requires Sarah Ferrari to notify
Case 5–2
Several control procedures could be implemented to prevent or detect the theft of
cash from fictitious returns.
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Case 5–3
Several possible procedures for preventing or detecting the theft of grocery items
by failing to scan their prices include the following:
a. Most scanning systems are designed so an audible beep is heard each time
periodic, surprise basis by supervisors.
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Case 5–4
Sue is clearly behaving in an unprofessional manner in intentionally shortchang-
ing her customers.
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Case 5–5
1. There are several methods that could be used to determine how much the
cashier has stolen. The method described below is based on preparing a
bank reconciliation as illustrated in this chapter. Because of the theft of the
undeposited receipts, the bank reconciliation adjusted balances will not
agree. The difference between the adjusted balances is the estimate of the
amount stolen by the cashier.
CLAIREMONT COMPANY
Bank Reconciliation
August 31, 20Y1
Cash balance according to bank statement .................... $5,350
Deduct outstanding checks:
No. 370 ...................................................................... $ 580
Outstanding checks omitted from the bank
reconciliation prepared by the cashier:
No. 370 ...................................................................... $ 580
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Case 5–5, Concluded
2. The cashier attempted to conceal the theft by preparing an incorrect bank
3. a. Two major weaknesses in internal controls, which allowed the cashier to
steal the undeposited cash receipts, are as follows:
b. Two recommendations that would improve internal controls so that simi-
lar types of thefts of undeposited cash receipts could be prevented are as
follows:
Note to Instructors: In addition to the above recommendations, Clairemont Com-
172
Case 5–6
Note to Instructors: Answers will vary. The purpose of this activity is to familiarize
students with the internal controls used by specific businesses within your
community. For example, when ordering food at a McDonald’s drive-through
window, your order is processed as follows:
1. The order is taken at a remote location by speaking with the cashier who
