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Exam 14: Planning for Profit and Cost Control

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Question 71

Multiple Choice

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Which of the following is a true statement?

A) Pro forma financial statements are based on the company's budgets.
B) Companies prepare pro forma financial statements to show how their performance for the period will "look" if actual results match the budget.
C) Companies usually prepare a pro forma income statement, pro forma balance sheet, and pro forma statement of cash flows.
D) All of the answers are correct.

E) A) and B)
F) B) and D)

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Question 72

Multiple Choice

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Budgeted depreciation expense would not appear on a:

A) Selling and administrative expense budget.
B) Budgeted income statement.
C) Cash budget.
D) All of the answers are correct.

E) A) and B)
F) None of the above

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Question 73

True/False

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The marketing department is primarily responsible for establishing the sales forecast.

Najimi Enterprises recently began selling on the internet. Internet sales for the fourth quarter of Year 1 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 $150,000. Required: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.Compute the accounts receivable balance as of the end of Year 2.Prepare a cash receipts schedule for all four quarters of Year 2 and the year as a whole.

One company's practice is to provide bonuses to salespeople who exceed their sales targets. Which of the following advantages of budgeting enables the company to establish its recognition program?

Which of the following items typically found on the selling and administrative expense budget will also impact the cash budget?

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: $\begin{array}{lc}\text { Dec. Year 1 } & \$ 44,000 \\\text { Jan. Year 2 } & \$ 46,500 \\\text { Feb. Year 2 } & \$ 51,000 \\\text { Mar. Year 2 } & \$ 61,500\end{array}$ 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 Year 2 is:

Spacely Sprockets' sales budget shows the following expected total sales: $\begin{array} { l r } \quad \text { Month } & \text { Sales } \\\text { January } & \$ 30,000 \\\text { February } & \$ 40,000 \\\text { March } & \$ 35,000 \\\text { April } & \$ 30,000\end{array}$ The company expects 80% of its sales to be on account (credit sales). Credit sales are collected as follows: 30% in the month of sale and 68% in the month following the sale, with the remainder being uncollectible and written off in the month following the sale. Required:Calculate budgeted accounts receivable at the end of each month from February through April.Calculate budgeted cash inflows from collection of receivables for each month from February through April.

Markham Company has completed its sales budget for the first quarter of Year 2. Projected credit sales for the first four months of the year are shown below: $\begin{array} { l l } \text { January } & \$ 30,000 \\\text { February } & \$ 36,000 \\\text { March } & \$ 45,000 \\\text { April } & \$ 48,000\end{array}$ The company's past records show collection of credit sales as follows: 40% in the month of sale and the balance in the following month. The total cash collection from receivables in March is expected to be:

Benton Company's sales budget shows the following expected total sales: $\begin{array} { l l } \text { Manth } & \text { Sales } \\\text { January } & \$ 25,000 \\\text { February } & \$ 30,000 \\\text { March } & \$ 35,000 \\\text { April } & \$ 40,000\end{array}$ The company expects 80% of its sales to be on account (credit sales) . Credit sales are collected as follows: 25% in the month of sale and 72% in the month following the sale, with the remainder being uncollectible and written off. The total cash receipts during April would be:

Indicate whether each of the following statements is true or false.

The master budget details:

The first budget prepared in a master budget is the cash receipts budget.

Markham Company has completed its sales budget for the first quarter of Year 2. Projected credit sales for the first four months of the year are shown below: $\begin{array} { l l } \text { January } & \$ 22,000 \\\text { February } & \$ 28,000 \\\text { March } & \$ 37,000 \\\text { April } & \$ 40,000\end{array}$ The company's past records show collection of credit sales as follows: 30% in the month of sale and the balance in the following month. The total cash collection from receivables in March is expected to be:

Purchases on account are given below: $\begin{array} { | c | c | c | } \hline \text { October } & \text { November } & \text { December } \\\hline 30,000 & 40,000 & 50,000 \\\hline\end{array}$ 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?

Sound Effects Audio Systems sells and installs car stereo systems. Managers need to prepare an inventory purchases budget for the first quarter of Year 2. The company's sales budget for the first quarter is provided below: $\begin{array}{rrrr} & \text { January } & \text { February } & \text { March } \\\text { Budgeted Sales } & \$ 200,000 & \$ 196,000 & \$ 180,000\end{array}$ Based on past experience, the company expects the cost of goods sold to equal 80% of sales. Furthermore, the ending inventory balance each month should be $8,000 plus 20% of the current period's cost of goods sold. The inventory balance on December 31, Year 1 was $34,000. The company makes all purchases on account and pays 60% of accounts payable in the month of purchase and the remaining 40% in the next month. Accounts payable stood at $36,000 at December 31, Year 1. Required:Prepare an inventory purchases budget for January, February, and March of Year 2.Determine the amount of ending inventory and the accounts payable balance that will appear on the March 31, Year 2 pro forma balance sheet.Prepare a schedule of cash payments for inventory for January, February, and March, Year 2.

Indicate whether each of the following statements is true or false.

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?

Budgeted sales commissions would appear on the:

The cash budget is based on which budget?