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Vector Company seeks input from salespeople regarding the number of units they believe they can sell during the upcoming budget period. This is an example of participative budgeting.

A) True
B) False

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The master budget generally starts with a sales forecast.

A) True
B) False

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Bright Minds Toy Company prepared the following sales budget for the second quarter. Projected sales for each of the first three months of operations are as follows: Bright Minds Toy Company prepared the following sales budget for the second quarter. Projected sales for each of the first three months of operations are as follows: Bright Minds expects to collect 70% of the sales on account in the month of sale, and 20% in the month following the sale, and the remainder in the second month following the sale. What is the amount of sales revenue that the company will report on the second quarter pro forma income statement? A) $1,335,000 B) $1,129,800 C) $1,207,000 D) $1,001,800 Bright Minds expects to collect 70% of the sales on account in the month of sale, and 20% in the month following the sale, and the remainder in the second month following the sale. What is the amount of sales revenue that the company will report on the second quarter pro forma income statement?


A) $1,335,000
B) $1,129,800
C) $1,207,000
D) $1,001,800

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

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Which of the following cash budget equations is incorrect?


A) Cash payments + cash receipts = cash requirements
B) Beginning cash + cash receipts = total cash available
C) Cash payments + cash cushion = total cash needed
D) Period one ending cash balance = period two beginning cash balance

E) A) and B)
F) A) and C)

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


A) Expected cash collections
B) Expected cash payments
C) Expected credit sales
D) Financing activities

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

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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) B) and C)
F) A) and D)

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Select the incorrect statement regarding the human factor in the budgeting process.


A) Budgets force employees to follow the organization's plan.
B) The evaluation feature of budget systems is frightening for many people.
C) There is a tendency for people to be uncomfortable with budgets.
D) Proper handling of human relations is essential to the establishment of an effective budget system.

E) C) and D)
F) None of the above

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Cheyenne Company has budgeted the following information for June: Cheyenne Company has budgeted the following information for June: If there is a cash shortage, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,000 increments and interest is paid monthly at 1% on the first day of the following month. The company had no debt before June 1<sup>st</sup>. The amount of interest paid on July 1 would be: A) $250. B) $400. C) $221. D) $290. If there is a cash shortage, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,000 increments and interest is paid monthly at 1% on the first day of the following month. The company had no debt before June 1st. The amount of interest paid on July 1 would be:


A) $250.
B) $400.
C) $221.
D) $290.

E) A) and B)
F) A) and C)

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The amount of cash paid for S&A expenses during the month of November is: A) $21,000 B) $22,200 C) $21,700 D) $23,200 The amount of cash paid for S&A expenses during the month of November is:


A) $21,000
B) $22,200
C) $21,700
D) $23,200

E) All of the above
F) A) and B)

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Budgeting that involves the development of a master budget to direct the firm's activities over the short-term is referred to as:


A) capital budgeting.
B) operations budgeting.
C) strategic planning.
D) None of the choices.

E) B) and C)
F) A) and B)

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Sentra Sporting Company sells tennis rackets and other sporting equipment. The purchasing department manager prepared the inventory purchases budget. Sentra's policy is to maintain an ending inventory balance equal to 15% of the following month's cost of goods sold. January's budgeted cost of goods sold is $70,000. Sentra Sporting Company sells tennis rackets and other sporting equipment. The purchasing department manager prepared the inventory purchases budget. Sentra's policy is to maintain an ending inventory balance equal to 15% of the following month's cost of goods sold. January's budgeted cost of goods sold is $70,000. What is the amount of ending inventory that the company will report on its pro forma balance sheet? A) $7,500 B) $10,500 C) $35,300 D) $60,500 What is the amount of ending inventory that the company will report on its pro forma balance sheet?


A) $7,500
B) $10,500
C) $35,300
D) $60,500

E) A) and B)
F) A) and C)

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The following budget information is available for the Arch Company for January Year 2: The following budget information is available for the Arch Company for January Year 2: 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. A) $262,500 B) $283,000 C) $240,000 D) $285,800 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.


A) $262,500
B) $283,000
C) $240,000
D) $285,800

E) A) and C)
F) B) and C)

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

A) True
B) False

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Planning concerned with long-range decisions such as defining the scope of the business is referred to as:


A) operations budgeting.
B) master planning.
C) capital budgeting.
D) strategic planning.

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

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Compton Company expects the following total sales: Compton Company expects the following total sales: The company expects 60% of its sales to be credit sales and 40% for cash. Credit sales are collected as follows: 30% in the month of sale, 70% in the month following the sale. The budgeted accounts receivable balance on May 31 is: A) $12,240. B) $12,600. C) $20,400. D) $21,000. The company expects 60% of its sales to be credit sales and 40% for cash. Credit sales are collected as follows: 30% in the month of sale, 70% in the month following the sale. The budgeted accounts receivable balance on May 31 is:


A) $12,240.
B) $12,600.
C) $20,400.
D) $21,000.

E) B) and C)
F) A) and C)

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The master budget normally covers:


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

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

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Which of the following statements is true?


A) Participative budgeting means that a company's budget should be prepared by lower-level employees.
B) The attitudes and actions of upper-level management have little impact on the effectiveness of a company's budget.
C) Employees often find that budgets are constraining and limiting.
D) In preparing a budget, information flows occur only from the bottom up.

E) C) and D)
F) A) and C)

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


A) Required purchases
B) Cash collections
C) Budgeted cost of goods sold
D) Desired ending inventory

E) A) and B)
F) A) and C)

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Budgeting that involves decisions such as whether to buy or lease equipment or build a new factory is referred to as:


A) capital budgeting.
B) operations budgeting.
C) facilities planning.
D) strategic planning.

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

Correct Answer

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


A) master planning.
B) budgeting.
C) strategic planning.
D) operational planning.

E) All of the above
F) A) and D)

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