7) The function of a budget includes to
A) indicate the amount and time of future inancing needs.
B) provide a basis for corrective action.
C) provide information for performance evaluations.
D) all of the above.
Question Status: Previous edition
Objective: 17.3 Prepare a cash budget and use it to evaluate the amount and timing of a irm’s short-
term inancing requirements.
Keywords: cash budgets
Principles: Principle 3: Cash Flows Are the Source of Value
Table 1
Dorian Industries’ projected sales for the irst six months of 2014 are given below:
Jan. $200,000 April $400,000
Feb. $240,000 May $320,000
March $280,000 June $320,000
25% of sales is collected in cash at the time of the sale, 50% is collected in the month
following the sale, and the remaining 25% is collected in the second month following the
sale. Cost of goods sold is 75% of sales. Purchases are made in the month prior to the sale,
and payments for purchases are made in the month of the sale. Total other cash expenses
are $60,000/month. The company’s cash balance as of February 28, 2004 will be $40,000.
Excess cash will be used to retire short-term borrowing (if any). Dorian has no short-term
borrowing as of February 28, 2014. Assume that the interest rate on short-term borrowing
is 1% per month. The company must have a minimum cash balance of $25,000 at the
beginning of each month. Round all answers to the nearest $100.
8) Based on the information in Table 1, what are Dorian Industries’ total cash receipts
(collections) for April 2014?
A) $400,000
B) $300,000
C) $100,000
D) ($60,000)
Question Status: Revised
Objective: 17.3 Prepare a cash budget and use it to evaluate the amount and timing of a irm’s short-
term inancing requirements.
Keywords: cash budgets
Principles: Principle 3: Cash Flows Are the Source of Value
31
9) Based on the information in Table 1, what is Dorian Industries’ total disbursement in
May (not including interest on short-term borrowing)?
A) $300,000
B) $240,000
C) $25,900
D) ($60,000)
Question Status: Revised
Objective: 17.3 Prepare a cash budget and use it to evaluate the amount and timing of a irm’s short-
term inancing requirements.
Keywords: cash budgets
Principles: Principle 3: Cash Flows Are the Source of Value
10) Based on the information in Table 1, what is Dorian Industries’ ending cash balance
(before borrowing) in March?
A) $10,000
B) $25,000
C) $20,000
D) ($30,000)
Question Status: Revised
Objective: 17.3 Prepare a cash budget and use it to evaluate the amount and timing of a irm’s short-
term inancing requirements.
Keywords: cash budgets
Principles: Principle 3: Cash Flows Are the Source of Value
11) Based on the information in Table 1, what is Dorian’s projected cumulative short-term
borrowing as of April 30, 2014?
A) $15,000
B) $60,000
C) $35,150
D) $75,000
Question Status: Revised
Objective: 17.3 Prepare a cash budget and use it to evaluate the amount and timing of a irm’s short-
term inancing requirements.
Keywords: cash budgets
Principles: Principle 3: Cash Flows Are the Source of Value
32
12) Based on the information in Table 1, what is Dorian’s projected EBIT for March 2014?
A) ($10,000)
B) ($30,000)
C) $70,000
D) None of the above
Question Status: Revised
Objective: 17.3 Prepare a cash budget and use it to evaluate the amount and timing of a irm’s short-
term inancing requirements.
Keywords: cash budgets
Principles: Principle 3: Cash Flows Are the Source of Value
Table 2
Fielding Wilderness Outitters had projected its sales for the irst six months of 20 14 to be
as follows:
Jan. $50,000 April $180,000
Feb. $60,000 May $240,000
March $100,000 June $240,000
Cost of goods sold is 60% of sales. Purchases are made and paid for two months prior to
the sale. 40% of sales are collected in the month of the sale, 40% are collected in the month
following the sale, and the remaining 20% in the second month following the sale. Total
other cash expenses are $40,000/month. The company’s cash balance as of March 1, 2014
is projected to be $40,000, and the company wants to maintain a minimum cash balance of
$15,000. Excess cash will be used to retire short-term borrowing (if any exists). Fielding
has no short-term borrowing as of March 1, 2014. Assume that the interest rate on short-
term borrowing is 1% per month.
13) Based on the information contained in Table 2, what are Fielding’s projected total
receipts (collections) for April?
A) $124,000
B) $180,000
C) ($4,000)
D) $36,000
Question Status: Revised
Objective: 17.3 Prepare a cash budget and use it to evaluate the amount and timing of a irm’s short-
term inancing requirements.
Keywords: cash budgets
Principles: Principle 3: Cash Flows Are the Source of Value
33
14) Based on the information in Table 2, what was Fielding’s projected loss for March?
A) $184,000
B) $110,000
C) $84,000
D) None of the above
Question Status: Revised
Objective: 17.3 Prepare a cash budget and use it to evaluate the amount and timing of a irm’s short-
term inancing requirements.
Keywords: cash budgets
Principles: Principle 3: Cash Flows Are the Source of Value
15) Based on the information in Table 2, how much short-term inancing is needed by
March 30, 2014?
A) $110,000
B) $15,000
C) $70,000
D) $85,000
Question Status: Revised
Objective: 17.3 Prepare a cash budget and use it to evaluate the amount and timing of a irm’s short-
term inancing requirements.
Keywords: cash budgets
Principles: Principle 3: Cash Flows Are the Source of Value
16) Miller Metalworks had sales in November of $60,000, in December of $40,000, and in
January of $80,000. Miller collects 40% of sales in the month of the sale and 60% one
month after the sale. Calculate Miller’s cash receipts for January.
A) $44,000
B) $56,000
C) $64,000
D) $72,000
Question Status: Previous edition
Objective: 17.3 Prepare a cash budget and use it to evaluate the amount and timing of a irm’s short-
term inancing requirements.
Keywords: cash budgets
Principles: Principle 3: Cash Flows Are the Source of Value
34
Table 3
Thompson Manufacturing Supplies’ projected sales for the irst six months of 2014 are
given below.
Jan. $250,000 April $400,000
Feb. $300,000 May $450,000
March $400,000 June $400,000
40% of sales is collected in the month of the sale, 50% is collected in the month following
the sale, and 10% is written of as uncollectible. Cost of goods sold is 70% of sales.
Purchases are made the month prior to the sale and are paid during the month the
purchases are made (i.e. goods sold in March are bought and paid for in February). Total
other cash expenses are $50,000/month. The company’s cash balance as of February 1,
2014 will be $40,000. Excess cash will be used to retire short-term borrowing (if any).
Thompson has no short-term borrowing as of February 28, 2014. Assume that the interest
rate on short-term borrowing is 1% per month. The company must have a minimum cash
balance of $25,000 at the beginning of each month. Round all answers to the nearest $100.
17) Based on the information in Table 3, what are Thompson’s projected total receipts
(collections) for March?
A) $400,000
B) $310,000
C) ($20,000)
D) $320,000
Question Status: Revised
Objective: 17.3 Prepare a cash budget and use it to evaluate the amount and timing of a irm’s short-
term inancing requirements.
Keywords: cash budgets
Principles: Principle 3: Cash Flows Are the Source of Value
18) Based on the information in Table 3, what is Thompson’s projected cumulative
borrowing as of March 1, 2014?
A) $85,000
B) $45,000
C) $70,000
D) – 0 –
Question Status: Revised
Objective: 17.3 Prepare a cash budget and use it to evaluate the amount and timing of a irm’s short-
term inancing requirements.
Keywords: cash budgets
Principles: Principle 3: Cash Flows Are the Source of Value
35
19) Based on the information in Table 3, what is Thompson’s projected cash balance as of
April 1, 2014?
A) $32,000
B) $4,300
C) $25,000
D) None of the above
Question Status: Revised
Objective: 17.3 Prepare a cash budget and use it to evaluate the amount and timing of a irm’s short-
term inancing requirements.
Keywords: cash budgets
Principles: Principle 3: Cash Flows Are the Source of Value
20) The primary purpose of a cash budget is to
A) determine the level of investment in current and ixed assets.
B) determine accounts payable.
C) provide a detailed plan of future cash lows.
D) determine the estimated income tax for the year.
Question Status: Previous edition
Objective: 17.3 Prepare a cash budget and use it to evaluate the amount and timing of a irm’s short-
term inancing requirements.
Keywords: cash budgets
Principles: Principle 3: Cash Flows Are the Source of Value
21) Your irm is trying to determine its cash disbursements for the next two months (June
and July). In any month, the irm makes purchases of 60% of that month’s sales, which are
paid the following month. In addition, the irm incurs the following costs every month and
pays for them in the month the expenses are incurred: wages/salaries of $10,000, rent of
$4,000, and miscellaneous cash expenses of $1,000. Depreciation amortized on a monthly
basis is $2,000. June’s sales are expected to be $100,000, and July’s sales are expected to
be $150,000. Cash disbursements for the month of July are expected to be
A) $105,000.
B) $107,000.
C) $77,000.
D) $75,000.
Question Status: Previous edition
Objective: 17.3 Prepare a cash budget and use it to evaluate the amount and timing of a irm’s short-
term inancing requirements.
Keywords: cash budgets
Principles: Principle 3: Cash Flows Are the Source of Value
36
22) As of December 31, Budget, Inc. had a cash balance of $50,000. December sales were
$150,000 and are expected to be $100,000 in January. 20% of sales in any month are cash
sales, and 80% of sales are collected during the following month. In January, Budget is
expected to have total cash disbursements of $120,000, and Budget requires a minimum
cash balance of $50,000. Budget’s expected cash receipts for January are
A) $80,000.
B) $100,000.
C) $110,000.
D) $140,000.
Question Status: Previous edition
Objective: 17.3 Prepare a cash budget and use it to evaluate the amount and timing of a irm’s short-
term inancing requirements.
Keywords: cash budgets
Principles: Principle 3: Cash Flows Are the Source of Value
23) Which of the following is NOT an element of the cash budget?
A) Cash receipts
B) Cash disbursements
C) Depreciation expense
D) New inancing needed
Question Status: Previous edition
Objective: 17.3 Prepare a cash budget and use it to evaluate the amount and timing of a irm’s short-
term inancing requirements.
Keywords: cash budgets
Principles: Principle 3: Cash Flows Are the Source of Value
24) Which of the following will decrease cumulative borrowing on the cash budget?
A) A decrease in interest expense
B) A decrease in collections
C) An increase in equipment purchases
D) Both A and B
Question Status: Previous edition
Objective: 17.3 Prepare a cash budget and use it to evaluate the amount and timing of a irm’s short-
term inancing requirements.
Keywords: cash budgets
Principles: Principle 3: Cash Flows Are the Source of Value
37