Exam 7: Planning for Profit and Cost Control

With regards to financial statements,"pro forma" means:

Which of the following items will not appear on a cash budget?

Scranton Company expects to begin operating on July 1,Year 1.The company's master budget contained the following operating expense budget: July August September Salary expense \ 36,000 \ 36,000 \ 36,000 Sales commissions, 5\% of sales 30,000 32,000 24,000 Utilities 2,800 2,800 2,800 Depreciation on store equipment 1,000 1,000 1,000 Rent 7,200 7,200 7,200 Miscellane ous 1,800 1,800 1,800 Total operating expenses \ 78,800 \ 80,800 \ 72,800 Sales commissions are paid in cash in the month following the month in which the expense is recognized.All other expense items requiring cash payment are paid in the month in which they are recognized.The amount of commissions payable that would appear on the company's pro forma balance sheet as of September 30,Year 1 is:

Sales for January are budgeted at 50,000 units,and the company expects sales to increase 4% each month.How many units will need to be purchased in February if the company's policy is to keep ending inventory each month at 10,000 units?

Which of the following would not be included in the inventory purchases budget?

How do short-term plans differ from long-term plans?

Janice was questioned recently about her department's spending in excess of the budget.This is an example of using the budget for performance measurement.

If a financial statement is labeled "pro forma" this means that the statement was prepared by a professional accountant (usually the firm's auditor)following a prescribed format.

Why is cash management important to a business?

Strategic planning deals with the establishment of long term company objectives.

O'Hare Company is in the process of preparing a purchases budget for the first quarter of Year 2.The company has budgeted sales as follows: Dec. Year 1 \ 44,000 Jan. Year 2 \ 46,500 Feb. Year 2 \ 51,000 Mar. Year 2 \ 61,500 Cost of goods sold is expected to be 75% of sales.The company would like to have ending inventory each month equal to 25% of the following month's predicted cost of sales.The total cost of purchases in January Year 2 is:

What is the ending accounts receivable balance that would be reported on the pro forma balance sheet prepared as of June 30?

The following budget information is available for the Arch Company for January Year 2: Sales \ 860,000 Cost of goods sold 540,000 Utilities expense 2,800 Administrative salaries 100,000 Sales commissions 5\% of sales Advertising 20,000 Depre ciation on store e quipment 50,000 Rent on administration building 60,000 Miscellane ous administrative expenses 10,000 All operating expenses are paid in cash in the month incurred.Compute total budgeted selling and administrative expenses (excluding interest)amount for January Year 2.

What is the relationship or connection between a company's pro forma financial statements and the end-of-period financial statements reported to stockholders and other external users?

Greenhill Company's balance sheet as of December 31,Year 1is provided below: Greenway Compary Balance Sheet December 31,2013 Assets Cash \ 35,000 Accounts recervable 40,000 Inventory 25,000 Plant and equipment, net of depreciation 300,000 Total assets \ 400,000 Liabilities and stockhalders' equity Accounts payable \3 0,000 Notes payable 50,000 Capital stock, no par 2000,000 Retained earrings 120,000 Total liabilities and stockholders' equity \ 400,000 CHANGE NEEDS TO BE MADE TO TABLE Change the "2013" in the heading to: Year 1 In anticipation of preparing the company's operating budget for the upcoming period,the company's accountant has gathered the following information: (a)December Year 1 sales were $220,000.Sales are expected to grow at a rate of 8% per month.Half of all sales are for cash and half are on account. (b)Inventory purchases are expected to total $100,000 during January and the inventory account is expected to have a $28,000 balance at January 31,Year 2.All inventory purchases are on account. (c)Selling and administrative expenses for January Year 2 are budgeted at $60,000 (exclusive of depreciation)plus 10% of sales.Selling and administrative expenses are paid in cash.Depreciation is budgeted at $3,000 for the month. (d)The notes payable will be paid in January,Year 2.The amount due will be $50,500.The $500 represents interest expense for the month of January,Year 2. (e)The company expects to purchase a new machine during January Year 2 at a cost of $5,000. Required: Prepare a budgeted income statement for the month of January Year 2.Use the traditional income statement format and ignore income taxes.

Hilliard Company budgeted the following transactions for April Year 2: Sales (75\% collected in month of sale) \ 200,000 Cash Operating Expenses 105,000 Cash Purchases of Investments 75,000 Cash Payment of Debt 15,000 Depreciation on Operating Assets 12,000 The beginning cash balance was $50,000.The company desires to have a $25,000 ending cash balance.The surplus (or shortage)of cash before considering any financing activities (that is,borrowings or repayments)during in April would be:

Expressing plans for a business in financial terms is commonly called:

Hernandez Company expects credit sales for January to be $100,000.Cash sales are expected to be $60,000.The company expects credit and cash sales to increase 10% for the month of February.Credit sales are collected in the month following the month in which sales are made.Based on this information the amount of cash collections in February would be:

Select the incorrect statement regarding the cash budget.

Najimi Enterprises recently began selling on internet.Internet sales for the fourth quarter of Year 2 totaled $600,000.The company's internet sales are expected to grow at a rate of 20% per quarter.All sales are made on account.The company's collection experience is that 70% of accounts receivable will be collected in the quarter of sale and 25% in the next quarter.Five percent of receivables will prove uncollectible and are written off during the quarter following the quarter of sale.The balance in accounts receivable at the end of December Year 1 was $180,000. Required: a)Prepare a sales budget for internet sales for the four quarters of Year 2;include a total column that shows total budgeted internet sales for the year. b)Compute the accounts receivable balance as of the end of Year 2. c)Prepare a cash receipts schedule for all four quarters of Year 2 and the year as a whole.