Chap008 Solution Manual

It is the sixth largest current asset and makes up

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It is the sixth largest current asset and makes up about 4.8% of its current assets. Its Cash (bank and cash) decreased from $1,706 at December 31, 2008, to $1,142 at December 31, 2009 (all in EUR millions). As a percent of total current assets, its Cash balance decreased from about 7.0% to about 4.8% 13. Palm’s cash and equivalents decreased by $24,518 thousand during the fiscal year ended May 31, 2009; specifically, from $176,918 thousand to $152,400 thousand. Its statement of cash flows identifies the three major sources and uses of its cash flows: (1) $188,512 thousand used by operating activities; (2) $38,119 thousand used in investing activities; and (3) $204,015 thousand generated by financing activities. (Although not required, students might also identify the effects of exchange rate changes on cash and cash equivalents accounting for a decrease of $1,902 thousand.) QUICK STUDIES Quick Study 8-1 (10 minutes) 1. The main objective of internal control procedures is to safeguard the assets of the business. This objective is best accomplished by designing an operational system with managerial policies that protect the assets from waste, fraud and theft. The system should be designed in compliance with the seven broad principles of internal control that are described in the chapter. 2. Separation of recordkeeping for assets from the custody over assets is intended to reduce theft and fraud. If this fundamental principle is followed, there has to be collusion between two or more employees for assets to be stolen and the theft to be concealed in the records. 3. The responsibility for a transaction should be divided between two or more individuals or departments to ensure that the work of one acts as a check on the other. Absent this, someone could create fictitious invoices and pay the money to herself or himself. 8-2
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Chapter 08 - Cash and Internal Controls Quick Study 8-2 (10 minutes) 1. The three basic guidelines for safeguarding cash are: (a) Separate the duties of those who handle (have custody of) cash from those that keep cash records. (b) Require that all cash receipts be deposited daily. (c) Require that all cash disbursements be made by check. 2. (a) Voucher system of control, and (b) Petty cash system of control. Quick Study 8-3 (10 minutes) 1. The cash category includes currency and coins along with the amounts on deposit in bank accounts, checking accounts, and savings accounts. Cash also includes items that are acceptable for deposit in these accounts including customer checks, cashier checks, certified checks, and money orders. 2. The cash equivalents category includes short-term, highly liquid investment assets meeting two criteria: (1) readily convertible to a known cash amount and (2) sufficiently close to their due dates so that their market value is not sensitive to interest rate changes. Usually only investments purchased within 3 months of their due date satisfy these criteria. Examples of cash equivalents include U.S. Treasury bills and money market funds.
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