Question 1

An alternative method of projecting a firm's future financial needs (such as bank loans )involves creation of a pro forma cash budget.Would you consider a cash budget to be more appropriate for short-term or long-term projections? Why? How do monthly cash budgets aid in the development of an annual cash budget? Is a cash budget more helpful for firms with seasonal needs or for those with constant cash flow needs?

Accepted Answer

The answer of An alternative method of projecting a firm's...

Question 2

A pro forma balance sheet typically begins with liabilities and then we estimate the assets.

Accepted Answer

A pro forma balance sheet typically begins with assets and then we estimate the liabilities.

Question 3

Because key variables are often related rather than isolated we often change our estimates for selected variables simultaneously when examining pro forma statements.We call this type of activity:
A)ratio analysis.
B)scenario analysis.
C)sensitivity analysis.
D)form analysis.

Accepted Answer

Scenario analysis involves changing multiple assumptions or variables simultaneously to assess the potential outcomes on financial forecasts or pro forma statements, reflecting different future conditions or scenarios.

Question 4

A pro forma balance sheet typically begins with the assets and then we estimate the liabilites and equity.

Accepted Answer

A pro forma balance sheet starts with the estimation of assets, followed by the estimation of liabilities and equity.

Question 5

A pro forma ________ forecasts the timing and amount of cash inflows and cash outflows.
A)income statement
B)balance sheet
C)cash budget
D)annual report

Accepted Answer

A cash budget is a financial statement that estimates the expected cash inflows and outflows for a specific period of time. It usually covers a shorter time frame than an annual report and focuses specifically on cash transactions. The pro forma aspect means it is a projected budget based on assumptions and estimates. Therefore, a pro forma cash budget would provide a forecast of future cash inflows and outflows.

Question 6

Table 6.2

-On-The-Level Manufacturing buys materials on credit at the start of the month and pays in 60 days.They also sell on credit,bill customers at the beginning of the month,and receive payment 30 days later.Using Table 6.2,what is the net cash flow from purchases and sales for the month of February?
A)$40,000
B)$45,000
C)-$45,000
D)There is NOT enough information to answer this question.

Accepted Answer

The question does not provide the necessary details from Table 6.2 to calculate the net cash flow from purchases and sales for February, making it impossible to determine the correct answer without additional information.

Question 7

A firm's ending equity equals the firms beginning equity plus any change in retained earnings.

Accepted Answer

This statement is true. Ending equity is calculated by adding the beginning equity to any change in retained earnings, which represents the portion of the firm's earnings that are not distributed to shareholders as dividends but are instead kept within the company for reinvestment or other purposes.

Question 8

Which of the following is the primary source of cash inflows in a pro forma cash budget?
A)anticipated dividends
B)anticipated sales
C)anticipated equity
D)anticipated net earnings

Accepted Answer

Anticipated sales are the primary source of cash inflows in a pro forma cash budget as they represent the revenue generated from the sale of goods or services. Anticipated dividends, anticipated equity, and anticipated net earnings are not sources of cash inflows in a pro forma cash budget, but rather represent how profits are distributed or reinvested.

Question 9

Which of the following choices would NOT be considered a cash outflow?
A)operational expenses
B)anticipated sales
C)selling,general,and administrative expenses
D)capital expenditures

Accepted Answer

Anticipated sales would be considered a cash inflow, not a cash outflow. Operational expenses, selling, general, and administrative expenses, and capital expenditures are all examples of cash outflows.

Question 10

Table 6.2

-On -The-Level Manufacturing buys materials on credit at the start of the month and pays in 60 days.They also sell on credit,bill customers at the beginning of the month,and receive payment 30 days later.Using Table 6.2,what is the net cash flow from purchases and sales for the month of March?
A)There is NOT enough information to answer this question.
B)$40,000
C)$45,000
D)-$45,000

Accepted Answer

The answer of Table 6.2

-On -The-Level Manufacturing buys materials on...

Question 11

A cash budget is often more valuable as a LONG-term rather than a SHORT-TERM financial forecasting vehicle.

Accepted Answer

A cash budget is typically more valuable as a short-term financial forecasting tool because it helps businesses manage their cash flow on a daily, weekly, or monthly basis, ensuring they have enough cash to cover immediate expenses. Long-term forecasts are usually addressed by other types of financial planning tools.

Question 12

When estimating a cash budget,which of the following items should the firm NOT include in the process?
A)dividends
B)taxes paid by the firm
C)wages
D)All of the above should be included

Accepted Answer

All of the items listed (dividends, taxes paid by the firm, and wages) are relevant cash flows for a firm and should be included in the cash budgeting process.

Question 13

A firm's pro forma balance sheet typically starts with liabilities and equity and THEN proceeds to assets

Accepted Answer

A firm's pro forma balance sheet typically starts with assets and then proceeds to liabilities and equity. This is because the pro forma balance sheet is a projection of how the company's assets will be financed through a combination of equity and debt, with assets being listed first to show what the company owns and how it will allocate its resources.

Question 14

When estimating a cash budget,which of the following items should the firm NOT include in the process?
A)taxes paid by creditors
B)commission payments paid to sales personnel
C)utility bills
D)fixed cash expenses

Accepted Answer

Taxes paid by creditors are not a cash expense of the firm and should not be included in the cash budget as it does not affect the firm's cash inflow or outflow. The other options, such as commission payments, utility bills, and fixed cash expenses, should be included in the cash budget as they are cash outflows that directly impact the firm's cash position.

Question 15

Forecasted net cash flows are the difference between forecasted cash inflows and forecasted cash outflows.

Accepted Answer

This is a correct statement. Net cash flows are calculated by subtracting cash outflows from cash inflows. Forecasted net cash flows consider estimated future inflows and outflows.

Question 16

The generation of cash budgets and and pro forma financial statements are equivalent ways of forecasting financial needs.

Accepted Answer

Cash budgets and pro forma financial statements both involve projecting future financial needs and can be used as tools to forecast financial needs for a business.

Question 17

The process of determining the effects of one key variable on the overall outcome of a pro forma income statement,for example,is known as:
A)ratio analysis.
B)scenario analysis.
C)sensitivity analysis.
D)form analysis.

Accepted Answer

Sensitivity analysis is the process of determining the effects of one key variable on the overall outcome of a financial statement, such as a pro forma income statement. It helps in assessing the impact of changes in key assumptions on financial projections and evaluating the risk associated with them. Ratio analysis involves the calculation and interpretation of different financial ratios based on the financial data of a company. Scenario analysis involves creating different scenarios and assessing the impact of each one on the financial outcomes. Form analysis is not a known financial analysis technique.

Question 18

-Use the information provided to complete the pro forma income statement and balance sheet for J.W.Bracken Inc.

Accepted Answer

The answer of  
-Use the information provided to complete...

Question 19

A cash budget is often more valuable as a SHORT-term rather than a LONG-TERM financial forecasting vehicle.

Accepted Answer

A cash budget is a tool used to forecast a company's cash inflows and outflows, allowing them to predict their short-term cash position. Since cash budgets are focused on tracking cash flow on a daily, weekly, or monthly basis, they are more beneficial for short-term financial planning rather than long-term forecasting. For long term forecasting, other financial statements such as income statements, balance sheets, and cash flow statements are used.

Question 20

A firm's ending equity equals the firms beginning equity less any change in long-term debt.

Accepted Answer

This statement is not always true. Ending equity can be affected by many other factors including net income, dividends, stock issuances, stock repurchases, and changes in other liabilities or assets.

Quiz 6: Projecting Financial Requirements and Managing Growth

A pro forma balance sheet typically begins with liabilities and then we estimate the assets.

Because key variables are often related rather than isolated we often change our estimates for selected variables simultaneously when examining pro forma statements.We call this type of activity:

A pro forma balance sheet typically begins with the assets and then we estimate the liabilites and equity.

A pro forma ________ forecasts the timing and amount of cash inflows and cash outflows.

A firm's ending equity equals the firms beginning equity plus any change in retained earnings.

Which of the following is the primary source of cash inflows in a pro forma cash budget?

Which of the following choices would NOT be considered a cash outflow?