Boeing is one of the world’s major aerospace firms, with operations involving commercial aircraft, military aircraft,

Boeing is one of the world’s major aerospace firms, with operations involving commercial aircraft, military aircraft, missiles, satellite systems, and information and battle management systems. As of a recent year, Boeing had $2,969 million of receivables involving U.S. government contracts and $1,241 million of receivables involving commercial aircraft customers, such as Delta Air Lines and United Airlines.

Should Boeing report these receivables separately in the financial statements, or combine them into one overall accounts receivable amount? Explain.


Answer:
Accounts receivable from the U.S. government are significantly different from receivables from commercial aircraft carriers such as Delta and United. Thus, Boeing should report each type of receivable separately. In its filing with the Securities and Exchange Commission, Boeing reports the receivables together on the balance sheet, but discloses each receivable separately in a note to the financial statements.




Allos Therapeutics, Inc., is a biopharmaceutical company that develops drugs for the treatment of cancer. Allos 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 $ 48,402 $141,423 $30,696
Net cash flows from operations (63,656) (62,199) (42,850)

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 Allos Therapeutics’ ratio of cash to monthly operating expenses for Year 3, Year 2, and Year 1.


Answer:
a. Year 3: $5,304.7 per month ($63,656 ÷ 12)
Year 2: $5,183.3 per month ($62,199 ÷ 12)
Year 1: $3,570.8 per month ($42,850 ÷ 12)

b. Year 3: 9.1 months ($48,402 ÷ $5,304.7)
Year 2: 27.3 months ($141,423 ÷ $5,183.3)
Year 1: 8.6 months ($30,696 ÷ $3,570.8)

c. Since Year 1, Allos Therapeutics monthly cash expenses have increased from $3,570.8 in Year 1 to $5,304.7 in Year 3. The ratio of cash to monthly cash expenses has increased from 8.6 months at the end of Year 1, to 27.3 months at the end of Year 2. Allos Therapeutics increased its monthly cash expenses in Year 3 to $5,304.7 per month and at the end of Year 3 it will run out of cash in just over nine months assuming it doesn’t change its operations or raise additional financing. Unless the company improves its cash flows, it may have difficulty raising sufficient cash from investors or creditors to continue operations in the long term.