58) A firm has beginning inventory of 450 units at a cost of $10 each. Production during the
period was 500 units at $12 each. If sales were 700 units, what is the cost of goods sold (assume
FIFO)?
A) $7,500
B) $8,000
C) $7,900
D) $8,100
59) MG Lighting had sales of 500 units at $100 per unit last year. The marketing manager
projects a 15 percent decrease in unit volume this year because a 10 percent price increase is
needed to pass rising costs through to customers. Returned merchandise will represent 3.2
percent of total sales. What is MG Lighting net dollar sales projection for this year?
A) $26,976
B) $69,344
C) $72,800
D) $45,254
60) In calculating gross profits, a firm utilizing LIFO inventory accounting would assume that
A) all sales were from the current production.
B) all sales were from the beginning inventory.
C) sales were from the current production until current production was depleted, and then sales
were from the beginning inventory.
D) all sales were for cash.
61) When the cost of raw materials is increasing, FIFO accounting
A) yields higher ending inventory values than LIFO.
B) produces higher unit sales than using LIFO.
C) yields higher cost of goods sold than LIFO.
D) All of the options are true.
62) In calculating gross profits, a firm utilizing FIFO inventory accounting would assume that
A) all sales were from the current production.
B) all sales were from the beginning inventory.
C) sales were from the beginning inventory until it was depleted, and then sales were from the
current production.
D) all sales were for cash.
63) In financial statements, the number of units shown to be sold is ________ than the number of
the units produced.
A) higher.
B) lower.
C) the same.
D) either higher or lower.
64) The pro forma income statement is important to the overall process of constructing the pro
forma balance sheet because it allows us to determine a value for
A) change in retained earnings.
B) gross profit.
C) interest expense.
D) prepaid expenses.
65) A firm has beginning inventory of 400 units at a cost of $12 each. Production during the
period was 700 units at $13 each. If sales were 800 units, what is the value of the ending
inventory using LIFO?
A) $2,750
B) $3,600
C) $3,300
D) $3,850
66) In general, a firm with higher amounts of sales on credit has
A) lower needs to borrow.
B) higher needs to borrow.
C) more rapidly collection of credit sales.
D) more ability to buy raw materials on credit.
67) The need for an increase or decrease in short-term borrowing can be predicted by
A) ratio analysis.
B) trend analysis.
C) a cash budget.
D) an income statement.
68) A firm has forecasted sales of $4,500 in April, $3,000 in May, and $5,000 in June. All sales
are on credit. 30% is collected in the month of the sale, and the remainder in the following
month. How much cash is collected in June?
A) $1,500
B) $5,250
C) $4,050
D) $3,600
69) A firm has forecasted sales of $4,500 in April, $3,000 in May, and $5,000 in June. All sales
are on credit. 30% is collected in the month of the sale, and the remainder in the following
month. What will be the balance in accounts receivable at the end of June?
A) $1,950
B) $6,500
C) $4,550
D) $3,500
70) Wiggles Right forecasted inventory purchases of $5,000 in October, $4,000 in November,
and $4,000 in December. All purchases are on credit. 40% is paid in the month of the purchase,
and the remainder is paid in the following month. How much cash is paid in November?
A) $5,400
B) $4,800
C) $6,000
D) $4,600
71) GS Cookie Co. forecasts cash receipts for January and February of $18,000 and $20,000,
with cash payments of $6,000 and $8,000, respectively. GS Cookie’s cash balance at the
beginning of January was $5,000, a level that it attempts to maintain. At the beginning of the
year, GS Cookie has a $15,000 balance outstanding on its line of credit at the local bank. Based
on its cash budget, how much of the line of credit can GS Cookie repay in January?
A) $12,000
B) $15,000
C) $4,000
D) None.
72) GS Cookie Co. forecasts cash receipts for January and February of $18,000 and $20,000,
with cash payments of $6,000 and $8,000, respectively. GS Cookie’s cash balance at the
beginning of January was $5,000, a level that it attempts to maintain. At the beginning of the
year, GS Cookie has a $15,000 balance outstanding on its line of credit at the local bank. Based
on its cash budget, how much of the line of credit can GS Cookie repay in January and February
combined?
A) $12,000
B) $15,000
C) $4,000
D) $17,000
73) In the construction of the cash payments schedule, the major cash payment is generally
A) the general and administrative expense.
B) costs associated with manufacturing inventory.
C) interest and dividends.
D) payments for new plant and equipment.
74) The difference between total receipts and total payments is referred to as
A) cumulative cash flow.
B) beginning cash flow.
C) net cash flow.
D) cash balance.
75) Net cash flow is equal to
A) income after taxes minus depreciation.
B) income after taxes minus dividends.
C) cash receipts minus cash payments.
D) cash receipts minus cash payments minus depreciation.
76) In developing data for accounts receivable for the pro forma balance sheet, the analyst is
most likely to turn to the
A) pro forma income statement.
B) cash budget.
C) prior balance sheet.
D) statement of retained earnings.
77) In a cash budget, the cumulative cash balance is equal to
A) net cash flow minus the beginning cash balance.
B) net cash flow plus the beginning cash balance.
C) the cumulative loan balance minus the ending cash balance.
D) the cumulative loan balance plus the ending cash balance.
78) Which of the following is most likely to increase the final number for notes payable for
short-term borrowing needs in the pro forma balance sheet?
A) A decrease in inventory.
B) An increase in retained earnings.
C) A decrease in accounts payable.
D) A decrease in accounts receivable.
79) The percent-of-sales method of financial forecasting
A) is more detailed than a cash budget approach.
B) requires more time than a cash budget approach.
C) assumes that balance sheet accounts maintain a constant relationship to sales.
D) provides a month-to-month breakdown of data.
80) A firm has targeted a 20% growth in sales this year. Last year’s cash as a percent of sales was
10%, accounts receivable 30%, and inventory 25%. What percentage growth in current liabilities
is required to support the growth in sales under the percent-of-sales forecasting method?
A) 32%
B) 13%
C) 8%
D) Not enough information to determine
81) In the percent-of-sales method, an increase in dividends
A) will increase required new funds.
B) will decrease required new funds.
C) has no effect on required new funds.
D) More information is needed.
82) Which of the following is untrue of the percent-of-sales method?
A) It is much easier than tracing through various cash flows to arrive at the pro forma statements.
B) It is a broad-brush approach when compared to developing pro forma statements.
C) The output is less meaningful because it doesn’t give the month–to-month breakdown of data
when compared to pro forma statements.
D) Changes in sales levels is not an important aspect of this method.
83) In the percent-of-sales method, if (A/S) and (L/S) both increase,
A) RNF stays the same.
B) RNF goes down.
C) RNF goes up.
D) More information is needed.
84) In forecasting a firm’s cash needs for some future period
A) the percent-of-sales method is a “broad-brush” approach.
B) cash budgets are more exact than the percent-of-sales method.
C) a cash budget approach can deal effectively with both level and seasonal production
schedules.
D) All of the options.
85) When using the percent-of-sales method in forecasting the funds needed, which of the
following is not true?
A) Required new funds increase as sales decrease.
B) Required new funds decrease as profit margin increases.
C) Required new funds increase as assets increase.
D) As the tax rate increases, the required new funds increase.
86) BHS Inc. determines that sales will rise from $400,000 to $550,000 next year. Spontaneous
assets are 60% of sales, and spontaneous liabilities are 30% of sales. BHS has an 8% profit
margin and a 40% dividend payout ratio. What is the level of required new funds?
A) $18,600
B) $138,600
C) $3,600
D) No new funds are needed
87) Firms that successfully increase their inventory turnover ratio will, among other things,
A) be able to reduce their borrowing needs.
B) be able to reduce their dividend payments to stockholders.
C) find it more difficult to be given credit by their resource suppliers.
D) have a greater need for high balances in their cash accounts.
88) If Excel Inc. has projected sales of $30,000 in January, $20,000 in February, and $20,000 in
March, where 20% of sales are cash sales and the remaining credit sales are collected the month
after, what are the cash receipts in March?
A) $20,000
B) $16,000
C) $21,400
D) $10,300
89) If the actual A/R at the end of February was $12,000 and projected sales in March are
$50,000, where 70% of sales are on credit, 60% of credit sales are collected in the month of the
sale, and 40% are collected in the month after the sale, what is the projected A/R balance on the
pro forma balance sheet for the end of March?
A) $14,000
B) $48,000
C) $20,000
D) $35,000
90) If the actual A/R at the end of February was $12,000 and projected sales in March are
$50,000, where 70% of sales are on credit, 60% of credit sales are collected in the month of the
sale, and 40% are collected in the month after the sale, what amount of cash is collected during
March?
A) $36,000
B) $14,000
C) $48,000
D) $35,000
91) If projected net cash outflow for November is ($10,000), the beginning cash balance is
$4,000, the minimum cash balance is $3,000, and the beginning loan balance is $8,000, what will
be the cumulative loan balance at the end of November?
A) $14,000
B) $5,000
C) $17,000
D) $22,000
92) If projected net cash outflow for November is ($10,000) and the beginning cash balance is
$4,000, which is the minimum cash balance required by the bank, what amount of loan would be
needed for November?
A) $14,000
B) $5,000
C) $10,000
D) $22,000
93) If projected net cash outflow for January is ($6,500), the beginning cash balance is $16,000,
the minimum cash balance is $5,000, and the beginning loan balance is $4,500, what will be the
cash balance on the pro forma cash budget at the end of January?
A) $5,000
B) $10,000
C) $12,000
D) $4,500
94) If projected net cash outflow for January is ($6,500), the beginning cash balance is $16,000,
the minimum cash balance is $5,000, and the beginning loan balance is $4,500, what will be
cumulative amount of loan at the end of January?
A) $4,500
B) $10,000
C) $12,000
D) $0