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167) On its December 31, 2017, balance sheet, Calgary Industries reports equipment of $370,000 and
accumulated depreciation of $74,000. During 2018, the company plans to purchase additional
equipment costing $80,000 and expects depreciation expense of $30,000. Additionally, it plans to
dispose of equipment that originally cost $42,000 and had accumulated depreciation of $5,600. The
balances for equipment and accumulated depreciation, respectively, on the December 31, 2018
budgeted balance sheet are:
A) $408,000; $98,400.
B) $450,000; $98,400.
C) $408,000; $104,000.
D) $450,000; $104,000.
E) $328,000; $74,000.
168) Calgary Industries is preparing a budgeted income statement for 2018 and has accumulated the
following information. Predicted sales for the year are $730,000 and cost of goods sold is 40% of
sales. The expected selling expenses are $81,000 and the expected general and administrative
expenses are $90,000, which includes $23,000 of depreciation. The company's income tax rate is
30%. The budgeted net income for 2018 is:
A) $186,900. B) $267,000. C) $84,700. D) $438,000. E) $80,100.
169) Grason Corporation is preparing a budgeted balance sheet for 2018. The retained earnings balance
at December 31, 2017 was $533,500. The 2015 budgeted income statement shows expected net
income of $112,000. The company expects to declare dividends during 2018 amounting to
$40,000. The expected balance in retained earnings on the 2018 budgeted balance sheet is:
A) $533,500. B) $605,500. C) $645,500. D) $685,500. E) $493,500.
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SHORT ANSWER QUESTIONS
170) Match the definitions 1 through 9 with the correct term or phrase a through i.
(a) Master budget
(b) General and administrative expense budget
(c) Budget
(d) Safety stock
(e) Budgeted income statement
(f) Budgeted balance sheet
(g) Sales budget
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(h) Cash budget
(i) Merchandise purchases budget
________ (1) A plan that shows the units and dollars of merchandise to be purchased during the
budget period.
________ (2) A managerial accounting report that shows predicted amounts of the company's assets,
liabilities, and balances as of the end of the budget period.
________ (3) A plan that shows the expected sales units and the dollars from these sales.
(4) A managerial accounting report that shows predicted amounts of sales and expenses
for the budget period.
________ (5) A quantity of inventory that provides protection against lost sales caused by unfulfilled
demand from customers or delays in shipments from suppliers.
(6) A formal, comprehensive plan for a company's future that includes several individual
budgets that are linked with each other to form a coordinated plan.
________ (7) A formal statement of a company's future plans, usually expressed in monetary terms.
________ (8) A plan that plans the predicted operating expenses not included in the selling expenses
or manufacturing budgets.
________ (9) A plan that shows the expected cash inflows and cash outflows during the budget
period.
171) Presented below are terms or phrases preceded by letters a through j and followed by a list of
definitions 1 through 10. Match the correct definitions with the terms or phrases by placing the letter
of the term or phrase in the answer space provided at the beginning of the definition.
(a) Budget
(b) Capital expenditures budget
(c) Activity-based budgeting
(d) Sales budget
(e) Production budget
(f) Cash budget
(g) Budgeted balance sheet
(h) Continuous budgeting
(i) Selling expense budget
(j) Rolling budgets
________ (1) A plan that lists the types and amounts of selling expenses expected during the budget
period.
________ (2) A plan that shows expected activities and their levels for the budget period used to
estimate resources required to perform the activities.
________ (3) A managerial accounting report that presents predicted amounts of the company's
assets, liabilities, and equity as of the end of the budget period.
________ (4) A formal statement of future plans, usually expressed in monetary terms.
________ (5) A plan showing the expected sales units and dollars from the sales; the starting point
in the budgeting process.
________ (6) A plan that lists dollar amounts estimated to be received from disposing of plant assets
and spent on purchasing additional plant assets to carry out the budgeted business activities.
________ (7) The practice of preparing budgets for a selected number of several periods and
revising those budgets as each period is completed.
(8) A plan showing the number of units to be produced each period, based on the units
projected in the sales budget, along with inventory considerations.
________ 9) A plan that shows the expected cash inflows and outflows during the budget period,
including receipts from loans needed to maintain a minimum cash balance and repayments of such
loans.
________ (10) Additional monthly or quarterly budgets to replace the ones that have lapsed as each
budget period goes by.
ESSAY QUESTIONS
172) Describe at least five benefits of budgeting.
173) List the three important guidelines that should be followed in the budgeting process.
174) What are rolling budgets? Why are rolling budgets prepared?
175) Briefly describe the process by which budgets are developed and administered.
176) Briefly describe a master budget and the sequence in which the individual budgets within the
master budget are prepared.
177) What is activity-based budgeting?
SHORT ANSWER QUESTIONS
178) Why is the sales budget usually prepared first?
ESSAY QUESTIONS
179) What is a sales budget? How is the sales budget prepared?
180) What is a merchandise purchases budget? How is the merchandise purchases budget constructed?
181) What is a capital expenditures budget?
182) What is a cash budget? How can management use a cash budget?
183) What is a production budget?
184) A department store has budgeted cost of goods sold for March of $60,000 for its women's shorts.
Management wants to have $12,000 of shorts in inventory at the end of the month to prepare for
the summer season. Beginning inventory in March was $8,000. What dollar amount of shorts
should be purchased to meet the above plans?
185) A sporting goods store budgeted August purchases of ski jackets at $140,000. The store had ski
jackets costing $12,000 in its inventory at the beginning of August; and to cover part of anticipated
September sales, they expect to have $25,000 of ski jackets in inventory at the end of the month of
August. What is the budgeted cost of goods sold for August?
186) In preparing a budget for the last three months of the current year, Country Cozy Company is
planning the units of merchandise it must order each month. The company's policy is to have 15%
of the next month's sales in its inventory at the end of each month. Projected sales for October,
November, and December are 27,000 units, 29,500 units, and 31,000 units, respectively. How
many units must be ordered in November?
187) Dado, Inc. is preparing its budget for the second quarter. The following sales data have been
forecasted:
April
May
June
July
August
Unit sales………………..
640
720
780
620
660
Additional information follows:
Inventory on March 31:
192 Units
Desired ending inventory each month:
30% of next month's
sales
Prepare a merchandise purchases budget for the total units to be purchased in the months of April,
May, and June, as well as the total unit purchases for entire the quarter.
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188) Greco Company has prepared the following forecasts of monthly sales:
July
August
Septembe
r
October
Sales (in Units) ………..
4,500
5,300
4,000
3,700
Greco has decided that the number of units in its inventory at the end of each month should equal
25% of the next month's sales. The budgeted cost per unit is $30.
(1) How many units should be in July's beginning inventory?
(2) What amount should be budgeted for the cost of merchandise purchases in July?
189) Hammerly Corporation is preparing its master budget for the quarter ending March 31. It sells a
single product for $25 a unit. Budgeted sales are 40% cash and 60% on credit. All credit sales are
collected in the month following the sales. Budgeted sales for the next four months follow:
January
February
March
April
Sales in Units ……………….
1,200
1,000
1,600
1,400
At December 31, the balance in accounts receivable is $10,000, which represents the uncollected
portion of December sales. The company desires merchandise inventory equal to 30% of the next
month's sales in units. The December 31 balance of merchandise inventory is 340 units, and
inventory cost is $10 per unit. Forty percent of the purchases are paid in the month of purchase and
60% are paid in the following month. At December 31, the balance of Accounts Payable is $8,000,
which represents the unpaid portion of December's purchases.
Operating expenses are paid in the month incurred and consist of:
· Sales commissions (10% of sales)
· Freight (2% of sales)
· Office salaries ($2,400 per month)
· Rent ($4,800 per month)
Depreciation expense is $4,000 per month. The income tax rate is 40%, and income taxes will be
paid on April 1. A minimum cash balance of $10,000 is required, and the cash balance at December
31 is $10,200. Loans are obtained at the end of a month in which a cash shortage occurs. Interest is
1% per month, based on the beginning of the month loan balance, and must be paid each month (The
interest payment is rounded to the nearest whole dollar). If the ending cash balance exceeds the
minimum, the excess will be applied to repaying any outstanding loan balance. At December 31, the
loan balance is $0.
Prepare a master budget (round all dollar amounts to the nearest whole dollar) for each of the months
of January, February, and March that includes the:
· Sales budget
· Schedule of cash receipts
· Merchandise purchases budget
· Schedule of cash disbursements for merchandise purchases
· Schedule of cash disbursements for selling and administrative expenses (combined)
· Cash budget, including information on the loan balance
· Budgeted income statement for the quarter
190) Oxford, Inc., is preparing its master budget for the quarter ended June 30. It sells a single product
for $40 each. Sales are 60% cash and 40% on credit. All credit sales are collected in the month
following the sale. At March 31, the balance in accounts receivable is $12,000, which represents
the uncollected balance on March sales. Budgeted sales for the next four months follow:
April
May
June
July
Sales in Units ………..
800
1,000
600
1,200
The product cost is $20 per unit, and desired ending inventory is 60% of the following month's sales
in units. Inventory at March 31 is 480 units. Purchases are paid 50% in the month of purchase and
50% in the following month. At March 31, the balance in accounts payable is $11,000, which
represents the unpaid purchases from March. Operating expenses are paid in the month incurred and
consist of:
· Commissions (10% of sales)
· Shipping (3% of sales)
· Office salaries ($3,000 per month)
· Rent ($5,000 per month)
Depreciation is $2,000 per month. Income taxes are 40%, and will be paid on July 1. There are no
taxes payable at March 31. A minimum cash balance of $12,000 is required, and the beginning cash
balance is $12,000. Loans are obtained at the end of any month when a cash shortage occurs.
Interest is 1% per month based on the beginning of the month loan balance and is paid at each
month end. If the ending cash balance exceeds the minimum, the excess will be applied to repaying
any outstanding loan balance. At March 31, the loan balance is $2,000. Prepare a master budget
(round all dollar amounts to the nearest whole dollar) for each of the months of April, May, and June
that includes the:
· Sales budget
· Schedule of cash receipts
· Merchandise purchases budget
· Schedule of cash disbursements for purchases of merchandise
· Schedule of cash disbursements for selling and administrative expenses (combined)
· Cash budget, including information on the loan balance
· Budgeted income statement for the quarter
