Horngren Ima16 Tif 07 GE
Horngren Ima16 Tif 07 GE
Horngren Ima16 Tif 07 GE
7.1 Questions
2) In practice, when developing a budget, two extremes used for guidance are ________ and ________.
A) participative budget; zero-base budget
B) strategic budget; long-range budget
C) financial planning budget; strategic budget
D) zero-base budget; activities of current or prior period
Answer: D
Diff: 2
LO: 7-1
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
1
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4) A(n) ________ starts with the assumption that current activities in a company will not automatically continue
in the next period.
A) activity-based budget
B) strategic budget
C) master budget
D) zero-base budget
Answer: D
Diff: 2
LO: 7-1
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
5) The most effective budget processes facilitate communication from top management to ________ and from
lower level managers and employees to ________.
A) the SEC; the audit committee
B) stockholders; creditors
C) lower level managers and employees; top management
D) creditors; stockholders
Answer: C
Diff: 1
LO: 7-1
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
6) Potential problems that can limit the benefits of budgeting do NOT include ________.
A) low levels of employee participation in the budget process
B) incentives to lie and cheat in the budget process
C) difficulties in obtaining accurate sales forecasts
D) an emphasis on functional budgeting
Answer: D
Diff: 1
LO: 7-1
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
2
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7) A major drawback of using historical results for judging current performance is that ________.
A) past results may be inaccurate
B) results may refer to a different manager
C) inefficiencies may be concealed in past results
D) managers may have cooked the books
Answer: C
Diff: 2
LO: 7-1
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
10) There are fewer benefits from budgeting in companies with uncertain or complicated environments.
Answer: FALSE
Diff: 2
LO: 7-1
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
11) Budgeted performance goals generally provide a better basis for evaluating actual performance than past
performance.
Answer: TRUE
Diff: 2
LO: 7-1
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
3
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12) A major drawback of using historical results for judging current performance is that inefficiencies may be
concealed in past performance.
Answer: TRUE
Diff: 2
LO: 7-1
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
13) An effective budget process communicates from the top down, but not from the bottom up.
Answer: FALSE
Diff: 2
LO: 7-1
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
7.2 Questions
2) Misalignment between the ________ stressed in budgets and ________ used to reward employees and
managers can limit the advantages of budgeting.
A) performance goals; participative goals
B) performance goals; performance measures
C) sales goals; bonuses
D) resource goals; bonuses
Answer: B
Diff: 1
LO: 7-2
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
4
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3) One way to reduce negative attitudes of managers toward budgets is by ________.
A) zero-based budgeting
B) activities-based budgeting
C) long range planning
D) participative budgeting
Answer: D
Diff: 1
LO: 7-2
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
4) ________ budgeting is when budgets are formulated with the active involvement of all affected employees.
A) Rolling
B) Team
C) Participative
D) Zero-based
Answer: C
Diff: 1
LO: 7-2
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
5) The effectiveness of any budgeting system depends directly on the attitudes of top management toward the
budgeting system.
Answer: TRUE
Diff: 2
LO: 7-2
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
6) Participative budgeting is the active participation of all affected employees in the formulation of the budget.
Answer: TRUE
Diff: 1
LO: 7-2
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
5
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7.3 Questions
1) Budgeting can result in incentives to lie and cheat that undermine ________.
A) a company's ethical standards
B) a company's value chain
C) standard of objectivity promulgated by the Institute of Management Accountants
D) none of the above
Answer: A
Diff: 1
LO: 7-3
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
2) Managers may ________ their budgeted costs or ________ their budgeted revenue to create a budget target
that is easier to achieve.
A) understate; overstate
B) overstate; understate
C) understate; understate
D) overstate; overstate
Answer: B
Diff: 1
LO: 7-3
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
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4) Misuse of budgets can lead to incentives to cheat and lie. Cheating and lying may take the form of ________.
A) making short-run decisions to increase profits that are not in the company's best long-run interests
B) budgetary slack
C) decreasing profits when actual profits significantly exceed the profit target
D) all of the above
Answer: D
Diff: 2
LO: 7-3
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
7) Budgetary slack helps buffer managers from budget cuts imposed by higher-level management.
Answer: TRUE
Diff: 2
LO: 7-3
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
7.4 Questions
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1) Where does a company find forecasted financial statements for a five to ten year period?
A) strategic plan
B) master budget
C) rolling budget
D) long-range plan
Answer: D
Diff: 1
LO: 7-4
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
Which of the following budgets identifies the overall goals and objectives of an organization?
A) sales budget
B) master budget
C) strategic plan
D) financial planning model
Answer: C
Diff: 2
LO: 7-4
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
3) A manager has several forecasts of sales corresponding to different levels of advertising. The manager
decides to implement $1 million of advertising in the next fiscal year. At this level of advertising, the manager
uses the ________ in the ________.
A) sales goal; sales forecast
B) sales budget; sales forecast
C) sales forecast; sales goal
D) sales forecast; sales budget
Answer: D
Diff: 1
LO: 7-4
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
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4) Which schedule gives the expected sales under a given set of conditions?
A) sales goal
B) sales budget
C) sales forecast
D) master budget
Answer: C
Diff: 1
LO: 7-4
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
5) Important factors used to forecast sales for a company include all of the following items EXCEPT ________.
A) changes in firm's prices
B) general economic conditions
C) changes in product mix
D) layout of production equipment
Answer: D
Diff: 1
LO: 7-4
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
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7) No matter how many technical experts a company uses in forecasting, the sales budget should ultimately be
the responsibility of the ________.
A) economists
B) CEO
C) line managers
D) market research staff
Answer: C
Diff: 1
LO: 7-4
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
10) Which of the following budgets identifies the overall goals and objectives of the organization?
A) capital budget
B) cash budget
C) master budget
D) strategic plan
Answer: D
Diff: 1
LO: 7-4
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
11) When examining a master budget, where does a company find the planned expenditures for facilities and
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equipment?
A) operating expense budget
B) capital budget
C) operating budget
D) purchases budget
Answer: B
Diff: 1
LO: 7-4
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
14) Sales forecasts are usually prepared under the direction of the top sales executive.
Answer: TRUE
Diff: 1
LO: 7-4
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
11
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16) The most forward-looking and least detailed budget is the strategic plan.
Answer: TRUE
Diff: 2
LO: 7-4
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
17) A decision made during long-range planning includes whether to delete a product from a company's product
line.
Answer: TRUE
Diff: 2
LO: 7-4
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
7.5 Questions
2) In a master budget, the schedule of cash disbursements for operating expenses is used to prepare the
________.
A) capital budget
B) purchases and cost of goods sold budget
C) sales budget
D) cash budget
Answer: D
Diff: 2
LO: 7-5
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
12
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3) In a master budget, the schedule of cash disbursements for purchases of inventory is used to prepare the
________.
A) operating expense budget
B) purchases budget
C) capital budget
D) cash budget
Answer: D
Diff: 2
LO: 7-5
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
5) The master budget is a detailed and comprehensive analysis of the ________ of the ________ plan.
A) first month; activity-based strategic
B) first month; strategic
C) first year; continuous
D) first year; long-range
Answer: D
Diff: 1
LO: 7-5
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
6) The two main components of the master budget are the ________.
A) cash budget and the capital budget
B) purchases budget and the budgeted income statement
C) budgeted income statement and the budgeted balance sheet
D) operating budget and the financial budget
Answer: D
Diff: 2
LO: 7-5
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
7) The ________ budget focuses on the budgeted income statement and the supporting schedules.
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A) financial
B) operating
C) operating expense
D) purchases and cost of goods sold
Answer: B
Diff: 1
LO: 7-5
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
13) A cash budget is a business plan that includes a set of schedules and financial statements.
Answer: FALSE
Diff: 2
LO: 7-5
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
14) The elements of a financial budget for a merchandising firm include the capital budget, the cash budget and
the budgeted balance sheet.
Answer: TRUE
Diff: 2
LO: 7-5
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
15
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15) An operating budget is the major part of the master budget that focuses on the balance sheet and supporting
schedules.
Answer: FALSE
Diff: 2
LO: 7-5
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
7.6 Questions
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4) What is the sequence of steps(order of preparation) for the financial budget?
A) sales budget, capital budget, cash budget, budgeted income statement
B) sales budget, operating expense budget, purchases and cost of goods sold budget
C) capital budget, cash budget, budgeted balance sheet
D) disbursements for purchases, disbursements for operating expenses, cash budget
Answer: C
Diff: 2
LO: 7-6
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
7.7 Questions
1) Which budget is used to develop the schedule of cash disbursements for operating expenses?
A) purchases and cost of goods sold budget
B) cash disbursements budget
C) operating expense budget
D) cash budget
Answer: C
Diff: 2
LO: 7-7
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
17
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2) What item is NOT a line item on the purchases and cost of goods sold budget?
A) purchases of inventory
B) sales
C) beginning inventory
D) desired ending inventory
Answer: B
Diff: 2
LO: 7-7
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
5) The schedule of cash disbursements for operating expenses does NOT have ________.
A) rent expense
B) insurance expense
C) wages expense
D) amortization expense on patents
Answer: D
Diff: 2
LO: 7-7
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
6) When preparing the budgeted income statement, which of the following is the source for the amount of Cost
of Goods Sold?
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A) sales budget
B) operating expense budget
C) schedule of disbursements for operating expense
D) purchases and cost of goods sold budget
Answer: D
Diff: 2
LO: 7-7
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
7) When preparing the budgeted income statement, which of the following is the source for the amount of
operating expenses?
A) schedule of disbursements for operating expenses
B) purchases budget
C) schedule of disbursements for purchases
D) operating expense budget
Answer: D
Diff: 2
LO: 7-7
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
8) When preparing the budgeted income statement, which of the following is the source for the amount of sales?
A) sales budget
B) purchases budget
C) operating expense budget
D) schedule of cash collections from customers
Answer: A
Diff: 1
LO: 7-7
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
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9) The first step in preparing the master budget is the ________.
A) cash budget
B) capital budget
C) operating expense budget
D) sales budget
Answer: D
Diff: 1
LO: 7-7
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
10) The first step in preparing the financial budget is the ________.
A) cash budget
B) capital budget
C) operating expense budget
D) sales budget
Answer: B
Diff: 1
LO: 7-7
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
11) For next year, David Company has budgeted sales of 8,000 units, target ending inventory of 1,000 units and
a beginning inventory of 300 units. How many units should be purchased?
A) 5,700
B) 6,300
C) 7,700
D) 8,700
Answer: D
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
20
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12) Matthew Company has a sales budget for next month of $400,000. Cost of goods sold is expected to be 40%
of sales. All units are paid for in the month following purchase. The beginning inventory is $5,000 and an
ending inventory of $12,000 is desired. Beginning accounts payable is $76,000. The cost of goods sold for next
month is ________.
A) $140,000
B) $160,000
C) $172,000
D) $220,000
Answer: B
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
13) Michael Company has a sales budget for next month of $300,000. Cost of goods sold is expected to be 50%
of sales. All units are paid for in the month following purchase. The beginning inventory is $10,000 and an
ending inventory of $12,000 is desired. Beginning accounts payable is $76,000. The purchases for next month
are ________.
A) $138,000
B) $140,000
C) $150,000
D) $152,000
Answer: D
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
21
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14) Benjamin Company has the following data:
Cost of goods sold average 60% of sales. The inventory at December 31 was $19,440. Desired ending inventory
levels are 20% of next month's sales at cost. What is the desired ending inventory value at February 28?
A) $15,840
B) $17,280
C) $26,400
D) $28,800
Answer: B
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
15) Downstairs Company has the following sales budget for the last six months of 2010:
July $100,000
August 80,000
September 110,000
October 80,000
November 100,000
December 94,000
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Month Budgeted Sales
January $108,000
February 132,000
March 144,000
April 120,000
The gross profit rate is 40% of sales and ending inventory at December 31 was $19,440. Desired ending
inventory levels are 30% of next month's sales at cost. What are the expected total purchases for February?
A) $79,200
B) $81,360
C) $102,960
D) $105,120
Answer: B
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
The cost of goods sold percentage is 70% of sales and the desired ending inventory level is 25% of next month's
sales at cost. ________ was the beginning inventory on May 1.
A) $3,300
B) $7,700
C) $8,750
D) $11,000
Answer: B
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
23
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18) Segal Company has the following data:
The cost of goods sold percentage is 80% of sales and the desired ending inventory level is 25% of next month's
sales at cost. What is the beginning inventory on August 1?
A) $4,200
B) $8,450
C) $9,800
D) $10,400
Answer: C
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
The cost of goods sold percentage is 65% of sales and the desired ending inventory level is 25% of next month's
sales at cost. What are the expected total purchases for June?
A) $17,500
B) $32,500
C) $32,825
D) $40,950
Answer: C
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
24
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20) Audrey Company has the following data:
The cost of goods sold percentage is 65% of sales and the desired ending inventory is 25% of next month's sales
at cost. What are the total purchases budgeted for July?
A) $33,150
B) $33,800
C) $41,600
D) $42,250
Answer: A
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
21) Santelle Company expects August sales to be $30,000. Approximately 40% of sales are cash sales.
Collection of credit sales are 50% in the month of sale, 40% in the month following sale and 5% two months
following sale. The remaining 5% is uncollectible. ________ is the expected cash collection in August from
August sales.
A) $9,000
B) $12,000
C) $21,000
D) $36,000
Answer: C
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
25
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22) Hoover Company expects June sales to be $30,000. Of these sales, credit sales are expected to be $12,000.
Collection of credit sales are 50% in the month of sale, 40% in the month following sale and 5% two months
following sale. The remaining 5% is uncollectible. ________ is the expected cash collection in June from June
sales.
A) $9,200
B) $14,000
C) $17,200
D) $24,000
Answer: D
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
23) Bush Company expects May sales to be $20,000. Approximately 40% of sales are cash sales. Collection of
credit sales are 50% in the month of sale, 40% in the month following sale and 5% two months following sale.
The remaining 5% is uncollectible. ________ is the expected cash collection in May from May sales.
A) $4,000
B) $6,000
C) $8,000
D) $14,000
Answer: D
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
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24) The following sales budget has been prepared:
Collections of credit sales are 50% in the month of sale, 40% in the month following sale, and 10% two months
following sale. No uncollectible accounts are expected. What are the estimated cash collections in December?
A) $135,000
B) $197,000
C) $325,000
D) $332,000
Answer: D
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
Collection of credit sales are 50% in the month of sale, 40% in the month following sale, and 10% two months
following sale. No uncollectible accounts are expected. What is the expected balance of Accounts Receivable at
October 31?
A) $95,000
B) $110,000
C) $115,000
D) $180,000
Answer: C
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
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26) Slowinski Company has the following sales budget:
Collections of credit sales are 50% in the month of sale, 40% in the month following sale, and 10% two months
following sale. No uncollectible accounts are expected. What are the estimated cash collections in November?
A) $130,000
B) $197,000
C) $327,000
D) $337,000
Answer: D
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
Collections of credit sales are 50% in the month of sale, 40% in the month following sale, and 10% two months
following sale. No uncollectible accounts are expected. What is the expected balance in Accounts Receivable at
November 30?
A) $77,500
B) $105,000
C) $123,000
D) $210,000
Answer: C
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
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28) Dooley Company has prepared the following sales budget:
Collections of credit sales are 50% in the month of sale, 40% in the month following sale, and 10% two months
following sale. No uncollectible accounts are expected. What are the estimated cash collections in October from
October sales?
A) $125,000
B) $140,000
C) $230,000
D) $240,000
Answer: D
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
Collections of credit sales are 50% in the month of sale, 40% in the month following sale, and 10% two months
following sale. No uncollectible accounts are expected. What is the expected balance in Accounts Receivable at
December 31?
A) $95,000
B) $116,000
C) $190,000
D) $210,000
Answer: B
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
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30) Rodney Company has the following sales budget:
Collections of credit sales are 50% in the month of sale, 40% in the month following sale, and 10% two months
following sale. No uncollectible accounts are expected. What are the estimated cash collections in September
from September sales?
A) $100,000
B) $200,000
C) $225,000
D) $250,000
Answer: C
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
All cash expenses are paid as incurred. What are the total operating expenses budgeted for the month of
January?
A) $30,000
B) $30,040
C) $31,200
D) $33,200
Answer: D
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
30
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32) Atkinson Company has the following information:
All cash expenses are paid as incurred. What are the total operating expenses budgeted for the month of April?
A) $3,160
B) $30,000
C) $33,200
D) $33,680
Answer: C
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
31
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33) Jupiter Company has the following information:
All cash expenses are paid as incurred. What are the budgeted total cash disbursements for operating expenses
in March?
A) $3,680
B) $30,000
C) $31,000
D) $34,000
Answer: C
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
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34) Venus Company has the following information:
All cash expenses are paid as incurred. What are the total cash disbursements budgeted for operating expenses
for the month of January?
A) $28,200
B) $30,000
C) $30,600
D) $33,600
Answer: C
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
35) Paulson Company's expected sales for April are $29,000. Other information follows:
36) Potter Company's expected sales for April are $29,000. Other information follows:
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Budgeted Operating Expenses Amount
Wages $4,000
Advertising 1,680
Depreciation 1,440
Rent 2,560
Promotion 5% of sales
All cash expenses are paid as incurred. What are the expected total cash disbursements for operating expenses
for April?
A) $6,240
B) $9,680
C) $9,690
D) $11,130
Answer: C
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
37) Paul Company's expected sales for April are $27,600. Other information follows:
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38) Mark Company has the following information:
35
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39) Christian Company has the following information:
36
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40) Healing Company has the following information:
37
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41) May Company has the following information:
38
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42) Marjorie Company has the following information:
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43) Margaret Company has the following information:
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44) Mary Company has the following information:
A) $14,740
B) $17,508
C) $26,948
D) $29,716
Answer: D
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
41
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46) The Wehr Company is preparing a budgeted income statement. The dollar amount of Wages Expense put on
the income statement can be found on the ________.
A) purchases budget
B) sales budget
C) schedule of cash disbursements for purchases
D) operating expense budget
Answer: D
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
47) Cash collections from customers in any given month include the current month's cash sales and expected
collections on credit sales.
Answer: TRUE
Diff: 2
LO: 7-7
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
48) The first step in preparing the master budget is the preparation of the budgeted income statement.
Answer: FALSE
Diff: 2
LO: 7-7
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
42
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49) The Pinsky Company has the following information available:
The gross profit rate is 40% and the desired ending inventory level is 20% of the next month's cost of sales.
Required:
Prepare a purchases and cost of goods sold budget for April, May and June.
Answer: April May June
Budg. cost of goods sold $91,800 $90,600 $152,700
Plus: Ending inventory 18,120 30,540 30,300
Total merchandise needed 109,920 121,140 183,000
Less: Beginning inventory (18,360) (18,120) (30,540)
Purchases $91,560 $103,020 $152,460
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
43
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50) The McGraw Company has the following information available:
The cost of goods sold rate is 65% and the desired ending inventory level is 25% of the next month's cost of
sales.
Required:
Prepare a purchases and cost of goods sold budget for July, August and September.
Answer: July August September
Budg. cost of goods sold $46,800 $48,100 $49,400
Plus: Ending inventory 12,025 12,350 12,675
Total merchandise needed 58,825 60,450 62,075
Less: Beginning inventory (11,700) (12,025) (12,350)
Purchases $47,125 $48,425 $49,725
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
44
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51) Phillip Corporation has the following sales budget:
Credit sales are 80% of total sales. Collections of credit sales are 80% in the month of sale, 15% in the month
after sale and 5% are never collected.
Required:
Prepare a schedule of cash collections for June, July and August.
Answer: June July August
Cash sales $20,000 $18,400 $22,000
Collections of credit sales:
Current month 64,000 58,880 70,400
Previous month 10,080 12,000 11,040
Total collections $94,080 $89,280 $103,440
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
45
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52) Marvin Company has the following sales budget:
Collections of credit sales are 40% in the month of sale, 50% in the month after sale and 10% two months after
sale. No uncollectible accounts are expected.
Required:
Prepare a schedule of cash collections for April.
Answer: Cash sales $10,800
Credit sales:
Current month 11,200
Previous month 16,000
Two months ago 3,000
Total collections $41,000
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
46
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53) Olson Company has the following data:
Required:
Prepare a schedule of cash disbursements for purchases for March, April and May.
Answer: March April May
January $22,500
February 152,000 $19,000
March 20,000 160,000 $20,000
April 22,000 176,000
May ______ ______ 15,000
Total $194,500 $201,000 $211,000
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
47
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54) Jorgensen Company has the following data:
Required:
Prepare a schedule of cash disbursements for operating expenses for April, May and June. All cash expenses are
paid when incurred.
Answer: April May June
Wages $12,600 $12,600 $12,600
Advertising 27,200 27,200 27,200
Rent 20,400 20,400 20,400
Freight-out 30,800 32,000 28,400
Sales commission 7,700 8,000 7,100
Total disbursements $98,700 $100,200 $95,700
Diff: 2
LO: 7-7
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
7.8 Questions
1) Which of the following budget(s) has(have) the disbursement for a planned purchase of equipment?
A) operating expense budget
B) purchases and cost of goods sold budget
C) cash budget only
D) cash budget and capital budget
Answer: D
Diff: 2
LO: 7-8
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
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2) On the cash budget, how do we obtain the available cash balance?
A) beginning cash balance
B) minimum cash balance desired
C) total cash increase from financing plus net cash receipts and disbursements
D) beginning cash balance minus minimum cash balance desired
Answer: D
Diff: 2
LO: 7-8
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
3) On a cash budget, if available cash balance plus net cash receipts and disbursements is negative, ________.
A) repayment of loan is suggested
B) repayment of loan is required
C) borrowing is necessary
D) borrowing is not necessary
Answer: C
Diff: 2
LO: 7-8
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
4) When preparing a budgeted balance sheet, the balance for the inventory account is found on the ________.
A) sales budget
B) cash budget
C) operating expense budget
D) purchases and cost of goods sold budget
Answer: D
Diff: 2
LO: 7-8
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
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5) When preparing a budgeted balance sheet, the balance in the cash account is found on the ________.
A) sales budget
B) cash budget
C) operating expense budget
D) capital budget
Answer: B
Diff: 2
LO: 7-8
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
6) When preparing a budgeted balance sheet, the balance in the equipment account is derived from information
in the ________.
A) operating expense budget
B) capital budget
C) purchases and cost of goods sold budget
D) schedule of cash disbursements for operating expenses
Answer: B
Diff: 2
LO: 7-8
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
8) The total amount of cash collections from customers by month appears on the ________.
A) sales budget
B) operating expense budget
C) cash budget
D) budgeted balance sheet
Answer: C
Diff: 1
LO: 7-8
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
9) Jensen Company is preparing a cash budget for the month of June. The following information is available:
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Cash Balance, May 31, 2015 $10,000
Cash collections from customers in June 76,000
Cash paid for merchandise in June 42,000
Paid operating expenses in June 17,000
Purchase furniture for cash in June 5,000
Depreciation expense in June 2,000
Amortization expense in June 3,000
The minimum cash balance desired is $10,000. What are the net cash receipts and disbursements for the month
of June?
A) $7,000
B) $10,000
C) $12,000
D) $17,000
Answer: C
Diff: 3
LO: 7-8
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
10) Wininger Company is preparing a cash budget for the month of June. The following information is
available:
The minimum cash balance desired is $10,000. What is the deficiency of cash before financing at June 30,
2015?
A) $(1,000)
B) $(3,000)
C) $(7,000)
D) $(11,000)
Answer: A
Diff: 3
LO: 7-8
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
11) Goller Company is preparing a cash budget for the month of June. The following information is available:
The minimum cash balance desired is $10,000. What is the cash balance on June 30, 2015?
A) $9,000
B) $10,000
C) $11,000
D) $19,000
Answer: D
Diff: 3
LO: 7-8
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
12) Cornish Company is preparing a cash budget for the month of June. The following information is available:
The minimum cash balance desired is $5,000. What are the net cash receipts and disbursements for the month of
June?
A) $(2,000)
B) $(3,000)
C) $(22,000)
D) $(32,000)
Answer: C
Diff: 3
LO: 7-8
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
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13) Cornell Company is preparing a cash budget for the month of June. The following information is available:
The minimum cash balance desired is $5,000. What is the deficiency of cash before financing at June 30, 2014?
A) $(5,000)
B) $(6,000)
C) $(11,000)
D) $(12,000)
Answer: B
Diff: 3
LO: 7-8
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
14) Warbel Company is preparing a cash budget for the month of June. The following information is available:
The minimum cash balance desired is $5,000. What is the cash balance on June 30, 2015?
A) $8,000
B) $9,000
C) $10,000
D) $13,000
Answer: B
Diff: 3
LO: 7-8
AACSB: Analytic skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
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15) ________ usually prepare and use the operating budget. ________ focus on the financial budget.
A) Sales managers; the board of directors
B) Controllers and treasurers; line operating managers
C) Line operating managers; controllers and treasurers
D) The audit committee; the board of directors
Answer: C
Diff: 1
LO: 7-8
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
16) Budgets that focus on the budgeted cost of activities required to produce and sell products are called
________.
A) strategic budgets
B) master budgets
C) activity-based budgets
D) rolling budgets
Answer: C
Diff: 1
LO: 7-8
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
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18) ________ models are mathematical models that can react to any set of assumptions about sales, costs and
product mix.
A) Strategic
B) Long-range
C) Financial planning
D) Operating budget
Answer: C
Diff: 1
LO: 7-8
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
19) The beginning available cash balance equals the beginning cash balance plus the minimum cash balance
desired.
Answer: TRUE
Diff: 2
LO: 7-8
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
20) The cash budget begins with the ending cash balance from the previous period.
Answer: TRUE
Diff: 1
LO: 7-8
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
22) The following rule applies when preparing the cash budget. If available cash plus net cash receipts and
disbursements is negative, then borrowing is necessary.
Answer: TRUE
Diff: 2
LO: 7-8
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
55
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23) Line operating managers usually prepare and use the operating budget.
Answer: TRUE
Diff: 2
LO: 7-8
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
24) The operating budget is a better measure of a company's long-term performance than the financial budget.
Answer: TRUE
Diff: 2
LO: 7-8
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
26) Financial planning models enable managers to get answers to "what-if" questions.
Answer: TRUE
Diff: 1
LO: 7-8
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
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27) Donald Company has the following information:
Donald Company wants to keep a minimum cash balance of $10,000. Assume that borrowing occurs at the
beginning of the month and repayments occur at the end of the month. Interest of 1% is paid in cash at the end
of each month when debt is outstanding. Borrowing and repayments are carried out in multiples of $1,000.
Required:
Prepare a cash budget for June.
Answer: Beginning cash balance $45,000
Minimum cash balance desired 10,000
Available cash balance $35,000
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28) O'Brien Company has the following information:
O'Brien Company wants to maintain a minimum cash balance of $50,000. Assume that borrowing occurs at the
beginning of the month and repayments occur at the end of the month. Interest of 1% per month is paid in cash
at the end of each month debt is outstanding. Borrowing and repayment is carried out in multiples of $1,000.
Required:
Prepare a cash budget for July.
Answer: Beginning cash balance $50,000
Minimum cash balance desired 50,000
Available cash balance $0
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7.9 Questions
1) Systematically varying budget data input to determine the effects of each change on the budget is called
________ analysis.
A) operating budget
B) financial budget
C) sensitivity
D) master budget
Answer: C
Diff: 1
LO: 7-9
AACSB: Reflective thinking skills
Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the
master budget
59
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