14.4 The Capital Budget and Projecting Cash Collections Flashcards
Which one of the following is the best characteristic concerning the capital budget? The capital budget is a(n)
A. Plan to ensure that there are sufficient funds available for the operating needs of the company.
B. Plan that assesses the long-term needs of the company for plant and equipment purchases.
C. Exercise that sets the long-range goals of the company including the consideration of external influences caused by others in the market.
D. Plan that results in the cash requirements during the operating cycle.
B. Plan that assesses the long-term needs of the company for plant and equipment purchases.
The capital budget assesses the long-term needs of the company for plant and equipment purchases to plan financing of major expenditures for such plant and equipment.
The cash receipts budget includes
A. Loan proceeds
B. Extinguishment of debt
C. Operating supplies
D. Funded depreciation
A. Loan proceeds.
Birch Corporation has the following historical pattern on its credit sales:
* 70% collected in month of sale
* 15% collected in the first month after sale
* 10% collected in the second month after sale
* 4% collected in the third month after sale
* 1% uncollectible
The sales on open account have been budgeted for the first 6 months of the year as follows:
January: $ 70,000
February: 90,000
March: 100,000
April: 120,000
May: 100,000
June: 90,000
Birch’s estimated total cash collections during April from accounts receivable are
A. $110,800
B. $108,000
C. $118,800
D. $84,000
A. $110,800
The estimated April collections are $110,800.
70% of April sales of $120,000
=$ 84,000
15% of March sales of $100,000
=15,000
10% of February sales of $90,000
=9,000
4% of January sales of $70,000
=2,800
Total collections
$110,800
Historically, Pine Hill Wood Products has had no significant bad debt experience with its customers. Cash sales have accounted for 10% of total sales, and payments for credit sales have been received as follows:
- 40% of credit sales in the month of the sale
- 30% of credit sales in the first subsequent month
- 25% of credit sales in the second subsequent month
- 5% of credit sales in the third subsequent month
The forecast for both cash and credit sales is as follows:
* January: $95,000
* February: 65,000
* March: 70,000
* April: 80,000
* May: 85,000
Due to deteriorating economic conditions, Pine Hill Wood Products has now decided that its cash forecast should include a bad debt adjustment of 2% of credit sales, beginning with sales for the month of April. The 5% collection in the fourth month should be reduced to reflect the bad debt. Because of this policy change, the total expected cash inflow in April related to sales made in April will
A. Be unchanged.
B. Decrease by $1,260.00.
C. Decrease by $1,440.00.
D. Decrease by $1,530.00.
Answer (A) is correct.
The estimated collections in July related to April credit sales will be reduced by $1,440. Estimated collections in the month of the sale will be unchanged.
Which one of the following best describes the capital budget?
A. It assesses the long-term needs of the company for plant and equipment purchases.
B. It sets the long-range goals of the company, including consideration of all available resources.
C. It results in the cash requirements during the operating cycle.
D. It ensures that there are sufficient funds available for the operating needs of the company.
A. It assesses the long-term needs of the company for plant and equipment purchases.
The capital budget assesses the long-term needs of the company for plant and equipment purchases to plan financing of major expenditures for such plant and equipment.
