Chapter 14 Accounting

The budgeting technique that provides for employee input into the planning process is known as: A. participative budgeting. B. continuous budgeting C. perpetual budgeting. D. zero-based budgeting.

A. participative budgeting.

Budgeting that involves the development of a master budget to direct the firm's activities over the shortterm is referred to as: A. operations budgeting. B. strategic planning. C. capital budgeting. D. None of the above.

A. operations budgeting.

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

A. The master budget usually includes operating budgets and capital budgets, and pro forma financial statements

A company's numerous specific budgets (sales, inventory purchases, etc.) together are referred to as the: A. master plan B. grand plan C. strategic plan D. current budget

A. master plan

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: The company's past records show collection of credit sales as follows: 40% in the month of sales and the balance in the following month. The total cash collection from receivables in March is expected to be: February: $36,000 March: $45,000 A. $39,600 B. $41,400 C. $18,000 D. $45,000

A. $39,600

Oakton Furniture provided the following information relevant to its sales for December Year 1 and the first quarter of Year 2 Based on the company's collection history, 42% of credit sales are collected in month of sale and remainder is collected in the following month. Cash collections in January from December credit sales would be: December: $120,000 A. $69,600 B. $72,000 C. $84,000 D. $81,200

A. $69,600

Which of the following items typically found on the selling and administrative expense budget will also impact the cash budget? A. Both administrative salaries and advertising expense B. Administrative salaries C. Advertising expense D. Depreciation expense

A. Both administrative salaries and advertising expense

Which of the following budgets or schedules uses data contained in the selling and administrative expense budget? A. Cash payments schedule B. Inventory purchases budget C. Cash receipt schedule D. Sales budget

A. Cash payments schedule

The budgeting process that involves adding a month to the end of the budget period at the end of each month, thus maintaining a twelve-month planing horizon, is referred to as: A. Continuous budgeting B. Capital budgeting C. Zero-based budgeting D. Participative budgeting

A. Continuous budgeting

Which of the following is a benefit of participative budgeting? A. Employees tend to be more motivated to achieve the budget B. Communication is clearer because it flows in only one direction- upward C. Budget planning is highly centralized D. A twelve-month planning horizon is maintained at all times

A. Employees tend to be more motivated to achieve the budget

Which of the following items is not needed to prepare a sales budget by product line? A. Expected purchase price of each product B. Expected selling price of each product C. Expected unit sales of each product D. All of these answers are correct

A. Expected purchase price of each product

Which of the following items would be least useful in preparing a schedule of cash receipts? A. Number of units expected to be purchased B. Past accounts receivable collection experience C. Service charges for credit card sales D. Expected revenue from cash sales

A. Number of units expected to be purchased

One company's practice is to provide bonuses to salespeople who exceed their sales targets. Which of the following advantages of budgeting enabled the company to establish its recognition program? A. Performance measurement B. Coordination C. Planning D. Corrective action

A. Performance measurement

The inventory purchases budget is based on which budget? A. Sales budget B. Selling and administrative expense budget C. Cash budget D. None of these are correct

A. Sales budget

Planning concerned with long-range decisions such as defining the scope of the business is referred to as A. Strategic planning B. Capital budgeting C. Master planning D. Operations budgeting

A. Strategic planning

The master budget normally covers A. 5-10 years B. 1 year C. 1-5 years D. Three months

B. 1 year

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

B. Budgets force employees to follow the organization's plan

Budget depreciation expense would not appear on a: A. Budgeted income statement B. Cash budget C. Selling and administrative expense budget D. All of the answers are correct

B. Cash budget

Which of the following would not be included in the cash budget? A. Receipts from customers B. Depreciation expense C. Interest expense D. Ending cash balance

B. Depreciation expense

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. Corrective action B. Performance measurement C. Planning D. Coordination

B. Performance measurement

Which of the following would be prepared first when a merchandising company uses a master budget? A. Inventory purchases budget B. Sales forecast C. Budgeted income statement D. Selling and administrative expense budget

B. Sales forecast

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: A. Operations budgeting B. Strategic planning C. Continuous planning D. Capital budgeting

B. Strategic planning

Select the correct statement about budgeting and human behavior. A. People are usually very comfortable with budgets B. The attitudes of upper managers significantly impact budge effectiveness C. Participative budgeting contributes to fear and resentment D. Budgets increase individual freedom within an organization

B. The attitudes of upper managers significantly impact budge effectiveness

Select the incorrect statement about the planning process A. The nature of planning changes with the length of the time period being considered B. The longer the time period, the more specific the plans C. Planning decisions can often be sub-divided into three distinct planning phrases, short-term, intermediate-term and long-term D. The shorter the time period, the less general the plans.

B. The longer the time period, the more specific the plans

Expressing plans for a business in financial terms is commonly called: A. operational planning B. budgeting C. master planning D. strategic planning

B. budgeting

Valley Farm Supply started the period with $80,000 cash. Cash receipts for January expected to total $350,000. Cash disbursements for January were expected to be $290,000. What is the expected cash balance at the end of January? A. $80,000 B. $290,000 C. $140,000 D. $350,000

C. $140,000

Which of the following would not be included in a selling and administrative expenses budget? A. Budgeted salary expenses B. Budgeted rent expense C. Budgeted interest expense D. Cash payments for selling and administrative expenses

C. Budgeted interest expense

Budgeting that involves decisions such as whether to buy or lease equipment or build a new factory is referred to as: A. Facilities planning B. Strategic planning C. Capital budgeting D. Operations budgeting

C. Capital budgeting

When a company's district managers submitted their preliminary budget proposals, top management discovered that the southern district manager had requested a new project management information system. Unfortunately, the system is incompatible with the system used at headquarters. Which of the following advantages of budgeting reduces the likelihood that the company will end up with two incompatible systems? A. Planning B. Performance measurements C. Coordination D. Corrective measures

C. Coordination

Which of the following budgets needs to be prepared prior to preparing an inventory purchases budget? A. Cash budget B. Selling and administrative expense budget C. Sales budget D. All of these are correct

C. Sales budget

Which of the following would represent the order in which most master budgets are prepared? A. Sales, Income Statement, Cash, Purchases B. Purchases, Cash, Sales, Income Statement C. Sales, Purchases, Cash, Income Statement D. Purchases, Sales, Cash, Income Statement

C. Sales, Purchases, Cash, Income Statement

The master budget details: A. Intermediate objectives B. Long-term objectives C. Short-term objectives D. All of these answers are correct

C. Short-term objectives

What is the role of top management in a participative budgeting system? A. Top management must always tighten employee-set budget standards to eliminate employees' attempt to build slack into the standards B. Top management has no role- the budget is entirely developed by the lower-level employees C. Top management must ensure that employee-generated objectives are consistent with those of the company D. All of the answers are correct

C. Top management must ensure that employee-generated objectives are consistent with those of the company

Budgeted sales commissions would appear on the: A. sales budget and pro forma income statement B. selling, general and administrative budget and pro forma balance sheet C. selling, general and administrative budget and pro forma income statement D. sales budget and pro forma balance sheet

C. selling, general and administrative budget and pro forma income statement

With regards to financial statements, "pro forma" means: A. Budgeted. B. Financial condition or position that can be expected if planning assumptions prove correct. C.Prepared in advance D. All of the above answers are correct.

D. All of the above answers are correct.

Select the correct statement regarding the selling and administrative expense budget A. The S&A budget is prepared before the pro forma income statement B. The S&A budget is prepared before the cash budget C. The S&A budget is prepared after the sales budget D. All of the answers are correct

D. All of the answers are correct

Which of the following is a benefit associated with budgeting? A. Enhances performance measurement B. The ability to take corrective action to improve performance C. Promotes planning and coordination D. All of these answers

D. All of these answers

The cash budget is based on which budget? A. Selling and administrative expense budget B. Inventory purchases budget C. Sales Budget D. All of these answers are correct

D. All of these answers are correct

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

D. All of these answers are correct

Which of the following would appear on a selling and administrative expense budget, but would not appear on a schedule of cash payments for selling and administrative expenses? A. Salary expense B. Sales expense C. Cost of goods sold D. Depreciation expense

D. Depreciation expense

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. In preparing a budget, information flows occur only from the bottom up D. Employees often find that budgets are constraining and limiting

D. Employees often find that budgets are constraining and limiting

Which of the following items is not needed to prepare an inventory purchases budget for a merchandising business? A. Beginning inventory B. Desired ending inventory C. Expected unit sales D. Expected unit selling price

D. Expected unit selling price

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

D. Membership on the budget committee is restricted most often to accountants because the budget involves numbers

Which of the following is not an advantage of budgeting? A. Forces coordination among departments to promote decisions in the best interests of the company as a whole. B. Provides advance notice of potential shortages, bottlenecks or other weaknesses in operating plans C. Provides a way to evaluate performance D. Provides assurance that accounting records are in accordance with generally accepted accounting principles

D. Provides assurance that accounting records are in accordance with generally accepted accounting principles