Question 1

Pro forma financial statements are prepared at the end of the year and are used to evaluate the performance of managers.

Accepted Answer

A) True 
 B)False

Question 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?

Accepted Answer

Pro forma financial statements are based

Question 3

If a company purchases its inventory on account, it need not prepare a schedule of cash payments for inventory purchases.

Accepted Answer

A) True 
 B)False

Question 4

The selling and administrative expense budget is prepared prior to the cash budget.

Accepted Answer

A) True 
 B)False

Question 5

Jason had been operating his machine for an entire month before he realized that it was generating more scrap than usual. Which advantage of budgeting would have helped him identify this problem sooner?

Accepted Answer

A)  Performance measurement 
B)  Coordination 
C)  Planning 
D)  Corrective action 
A)  Performance measurement 
B)  Coordination 
C)  Planning 
D)  Corrective action

Question 6

A company's numerous specific budgets (sales, inventory purchases, etc.) together are referred to as the:

Accepted Answer

A)  grand plan. 
B)  strategic plan. 
C)  current budget. 
D)  master budget. 
A)  grand plan. 
B)  strategic plan. 
C)  current budget. 
D)  master budget.

Question 7

Oakton Furniture provided the following information relevant to its sales for December 2013 and the first quarter of 2014 $\begin{array}{|l|r|r|r|r|}
\hline & \text { dec.2014}& \text {jan.2014 }& \text { feb.2014}& \text { mar.2014}\
\hline & {\text { (Actual) }} & \text { (Budgeted) } & {\text { (Budgeted) }} & {\text { (Budgeted) }} \
\hline \text { Credit sales } & \$  120,000 & \$  280,000 & \$  310,000 & \$  220,000 \
\hline \text { Cash sales } & \$  20,000 & \$  50,000 & \$  60,000 & \$  24,000\\hline 
\end{array}$ Based on the company's collection history, 2% of credit sales are uncollectible, 40% are collected in month of sale and the remainder is collected in the following month. Total budgeted cash receipts in February 2014 are expected to be:

Accepted Answer

A)  $60,000. 
B)  $162,400. 
C)  $346,400. 
D)  $228,000. 
A)  $60,000. 
B)  $162,400. 
C)  $346,400. 
D)  $228,000.

Question 8

Which of the following items would be least useful in preparing a schedule of cash receipts?

Accepted Answer

A)  Expected revenue from cash sales. 
B)  Number of units expected to be purchased. 
C)  Service charges for credit card sales. 
D)  Past accounts receivable collection experience. 
A)  Expected revenue from cash sales. 
B)  Number of units expected to be purchased. 
C)  Service charges for credit card sales. 
D)  Past accounts receivable collection experience.

Question 9

The accountant for Haven Industries could not prepare the following budgets because an item of information is missing for each one. Identify the missing items needed prior to preparing each budget.

Accepted Answer

(b) Expected unit sales of eac

Question 10

The nature of planning changes with the length of the time period being considered. Generally, the shorter the time period, the more general the plans.

Accepted Answer

A) True 
 B)False

Question 11

The master budget normally covers:

Accepted Answer

A)  Three months. 
B)  1 year. 
C)  1-5 years. 
D)  5-10 years. 
A)  Three months. 
B)  1 year. 
C)  1-5 years. 
D)  5-10 years.

Question 12

Select the correct statement about the master budget.

Accepted Answer

A)  The master budget is a group of detailed budgets and schedules representing the company's operating and financial plans for the past accounting period. 
B)  The master budget usually includes operating budgets and capital budgets, and pro forma financial statements. 
C)  The budgeting process usually begins with preparing the strategic budgets. 
D)  Preparing the master budget begins with the cash budget. 
A)  The master budget is a group of detailed budgets and schedules representing the company's operating and financial plans for the past accounting period. 
B)  The master budget usually includes operating budgets and capital budgets, and pro forma financial statements. 
C)  The budgeting process usually begins with preparing the strategic budgets. 
D)  Preparing the master budget begins with the cash budget.

Question 13

Which of the following statements is incorrect?

Accepted Answer

A)  Capital budgeting affects the master budget because it considers what assets a company should have and use when achieving its budgets. 
B)  Capital budgeting involves decisions as whether to buy or lease equipment. 
C)  Capital budgeting focuses on short-term planning. 
D)  Cash outflows for capital budgeting will appear on the cash budget. 
A)  Capital budgeting affects the master budget because it considers what assets a company should have and use when achieving its budgets. 
B)  Capital budgeting involves decisions as whether to buy or lease equipment. 
C)  Capital budgeting focuses on short-term planning. 
D)  Cash outflows for capital budgeting will appear on the cash budget.

Question 14

O'Hare Company is in the process of preparing a purchases budget for the first quarter of 2014. The company has budgeted sales as follows: $$\begin{array} { | l | l l | } 
\hline \text { December, 2013 } & \$ & 44,000 \
\hline \text { January, 2014 } & \$ & 46,500 \
\hline \text { February, 2014 } & \$ & 51,000 \
\hline \text { March, 2014 } & \$ & 61,500 \
\hline
\end{array}$$ 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 is:

Accepted Answer

A)  $35,719. 
B)  $46,500. 
C)  $44,438. 
D)  $59,250. 
A)  $35,719. 
B)  $46,500. 
C)  $44,438. 
D)  $59,250.

Question 15

Purchases on account are given below: $$\begin{array} { | r | r | r | } 
\hline \text { October } & \text { November } & \text { December } \
\hline 30,000 & 40,000 & 50,000 \
\hline
\end{array}$$ 55% of the month's purchases will be paid in the month of the purchase; the remaining 45% will be paid in the following month.
How much will the cash payments for purchases be in November?

Accepted Answer

A)  $35,500 
B)  $34,500 
C)  $40,000 
D)  $36,000 
A)  $35,500 
B)  $34,500 
C)  $40,000 
D)  $36,000

Question 16

The type of planning that involves long term decisions, such as defining the scope of the business and deciding what products to make is known as:

Accepted Answer

A)  Continuous planning 
B)  Strategic planning 
C)  Capital budgeting 
D)  Operations budgeting 
A)  Continuous planning 
B)  Strategic planning 
C)  Capital budgeting 
D)  Operations budgeting

Question 17

Select the incorrect statement about budgeting committees.

Accepted Answer

A)  Membership on the budgeting committee is restricted most often to accountants because the budget involves numbers. 
B)  Budgeting committees usually have responsibility for the coordination of budgeting activities. 
C)  The budgeting committee is responsible for settling disputes between various departments over budget matters. 
D)  One of the responsibilities of the budget committee is to monitor the organization's progress toward achieving its budget standards. 
A)  Membership on the budgeting committee is restricted most often to accountants because the budget involves numbers. 
B)  Budgeting committees usually have responsibility for the coordination of budgeting activities. 
C)  The budgeting committee is responsible for settling disputes between various departments over budget matters. 
D)  One of the responsibilities of the budget committee is to monitor the organization's progress toward achieving its budget standards.

Question 18

Greenhill Company's balance sheet as of December 31, 2013 is provided below:   
In anticipation of preparing the company's operating budget for the upcoming period, the company's accountant has gathered the following information:
(a) December 2013 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, 2014. All inventory purchases are on account.
(c) Selling and administrative expenses for January, 2014 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, 2014. The amount due will be $50,500. The $500 represents January's interest expense.
(e) The company expects to purchase a new machine during January, 2014 at a cost of $5,000.
Required:
Prepare a budgeted income statement for the month of January 2014. Use the traditional income statement format and ignore income taxes.

Accepted Answer

The answer of Greenhill Company's balance sheet as of December...

Question 19

Budgeted cash payments for inventory would appear on the:

Accepted Answer

A)  inventory purchases budget and the pro forma income statement. 
B)  capital budget and pro forma statement of cash flows. 
C)  cash budget and pro forma balance sheet. 
D)  inventory purchases budget and pro forma statement of cash flows. 
A)  inventory purchases budget and the pro forma income statement. 
B)  capital budget and pro forma statement of cash flows. 
C)  cash budget and pro forma balance sheet. 
D)  inventory purchases budget and pro forma statement of cash flows.

Question 20

What is the role of top management in a participative budgeting system?

Accepted Answer

A)  Top management has no role - the budget is entirely developed by the lower-level employees. 
B)  Top management must always tighten employee-set budget standards to eliminate employees' attempts to build slack into the standards. 
C)  Top management must ensure that employee-generated objectives are consistent with those of the company. 
D)  All of these answers are correct. 
A)  Top management has no role - the budget is entirely developed by the lower-level employees. 
B)  Top management must always tighten employee-set budget standards to eliminate employees' attempts to build slack into the standards. 
C)  Top management must ensure that employee-generated objectives are consistent with those of the company. 
D)  All of these answers are correct.

Pro forma financial statements are prepared at the end of the year and are used to evaluate the performance of managers.

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?

If a company purchases its inventory on account, it need not prepare a schedule of cash payments for inventory purchases.

The selling and administrative expense budget is prepared prior to the cash budget.

Jason had been operating his machine for an entire month before he realized that it was generating more scrap than usual. Which advantage of budgeting would have helped him identify this problem sooner?

A company's numerous specific budgets (sales, inventory purchases, etc.) together are referred to as the:

Which of the following items would be least useful in preparing a schedule of cash receipts?

The accountant for Haven Industries could not prepare the following budgets because an item of information is missing for each one. Identify the missing items needed prior to preparing each budget.

The nature of planning changes with the length of the time period being considered. Generally, the shorter the time period, the more general the plans.

The master budget normally covers:

Select the correct statement about the master budget.

Which of the following statements is incorrect?

Purchases on account are given below: October November December 30,000 40,000 50,000 55% of the month's purchases will be paid in the month of the purchase; the remaining 45% will be paid in the following month. How much will the cash payments for purchases be in November?

The type of planning that involves long term decisions, such as defining the scope of the business and deciding what products to make is known as:

Select the incorrect statement about budgeting committees.

Budgeted cash payments for inventory would appear on the:

What is the role of top management in a participative budgeting system?

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Long-Term Operational Assets

Accounting for Liabilities

Proprietorships, Partnerships, and Corporations

Financial Statement Analysis

An Introduction to Management Accounting

Cost Behavior, Operating Leverage, and Profitability Analysis

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Performance Evaluation

Planning for Capital Investments

Filters

Exam 14: Planning for Profit and Cost Control

Pro forma financial statements are prepared at the end of the year and are used to evaluate the performance of managers.

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?

If a company purchases its inventory on account, it need not prepare a schedule of cash payments for inventory purchases.

The selling and administrative expense budget is prepared prior to the cash budget.

Jason had been operating his machine for an entire month before he realized that it was generating more scrap than usual. Which advantage of budgeting would have helped him identify this problem sooner?

A company's numerous specific budgets (sales, inventory purchases, etc.) together are referred to as the:

Which of the following items would be least useful in preparing a schedule of cash receipts?

The accountant for Haven Industries could not prepare the following budgets because an item of information is missing for each one. Identify the missing items needed prior to preparing each budget.

The nature of planning changes with the length of the time period being considered. Generally, the shorter the time period, the more general the plans.

The master budget normally covers:

Select the correct statement about the master budget.

Which of the following statements is incorrect?

Purchases on account are given below: October November December 30,000 40,000 50,000 55% of the month's purchases will be paid in the month of the purchase; the remaining 45% will be paid in the following month. How much will the cash payments for purchases be in November?

The type of planning that involves long term decisions, such as defining the scope of the business and deciding what products to make is known as:

Select the incorrect statement about budgeting committees.

Budgeted cash payments for inventory would appear on the:

What is the role of top management in a participative budgeting system?

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Long-Term Operational Assets

Accounting for Liabilities

Proprietorships, Partnerships, and Corporations

Financial Statement Analysis

An Introduction to Management Accounting

Cost Behavior, Operating Leverage, and Profitability Analysis

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Performance Evaluation

Planning for Capital Investments

Filters