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Chapter 21 Budgeting - Test 2

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Chapter 21 Budgeting - Test 2

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Chapter 21 Budgeting - Test 2

  1. 1. VCE ACCOUNTING UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE CHAPTER 21 – BUDGETING © Michael Allison, Trinity Grammar School. Author’s permission required for external use Page | 1 Chapter 21 Test 2 – Budgeting Name ___________________________________________ Circle the correct response for each question: 1. (a) (b) (c) (d) 2. (a) (b) (c) (d) 3. (a) (b) (c) (d) 4. (a) (b) (c) (d) 5. (a) (b) (c) (d) 6. (a) (b) (c) (d) 7. (a) (b) (c) (d) 8. (a) (b) (c) (d) 9. (a) (b) (c) (d) 10. (a) (b) (c) (d) 11. (a) (b) (c) (d) 12. (a) (b) (c) (d) 13. (a) (b) (c) (d) 14. (a) (b) (c) (d) 15. (a) (b) (c) (d) 16. (a) (b) (c) (d) 17. (a) (b) (c) (d) 18. (a) (b) (c) (d) 19. (a) (b) (c) (d) 20. (a) (b) (c) (d) 21. (a) (b) (c) (d) 22. (a) (b) (c) (d) 23. (a) (b) (c) (d) 24. (a) (b) (c) (d) 25. (a) (b) (c) (d) 26. (a) (b) (c) (d) 27. (a) (b) (c) (d) 28. (a) (b) (c) (d) 29. (a) (b) (c) (d) 30. (a) (b) (c) (d) Total /30 marks
  2. 2. VCE ACCOUNTING UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE CHAPTER 21 – BUDGETING © Michael Allison, Trinity Grammar School. Author’s permission required for external use Page | 2 Chapter 21 Test 2 – Budgeting The owner of a small business is attempting to plan for the future by preparing a budget for October 2015. The following information has been provided. Balance of stock control 1 October 2015 $22,700 Balance of stock control 31 October 2015 $25,100 Balance of creditors control 1 October 2015 $5,900 Balance of creditors control 31 October 2015 $5,300 Returns of stock to suppliers expected during October $300 (GST $30) Discounts expected to be received from suppliers during October $500 Sales expected during October $13,800 Plus GST $1,380 Cost of sales expected during October $6,900 1. The Stock Control ledger for the budgeted period will be: a) Stock Control 1 Oct Balance 22700 31 Oct Creditors control 300 31 Oct Creditors control 9600 31 Oct Cost of sales 6900 31 Oct Balance 25100 32300 32300 1 Nov Balance 25100 b) Stock Control 1 Oct Balance 22700 31 Oct Creditors control/GST clearing 330 31 Oct Creditors control 9630 31 Oct Cost of sales 6900 31 Oct Balance 25100 32330 32330 1 Nov Balance 25100 c) Stock Control 1 Oct Balance 22700 31 Oct Creditors control 300 31 Oct Creditors control/GST clearing 9600 31 Oct Cost of sales 6900 31 Oct Balance 25100 32300 32300 1 Nov Balance 25100
  3. 3. VCE ACCOUNTING UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE CHAPTER 21 – BUDGETING © Michael Allison, Trinity Grammar School. Author’s permission required for external use Page | 3 d) Stock Control 1 Oct Balance 22700 31 Oct Creditors control/GST clearing 330 31 Oct Creditors control/GST clearing 9630 31 Oct Cost of sales 6900 31 Oct Balance 25100 32330 32330 1 Nov Balance 25100 2. The Creditors Control ledger for the budgeted period will be: a) Creditors Control 31 Oct Stock control/GST clearing 330 1 Oct Balance 5900 31 Oct Discount revenue 500 31 Oct Stock control 9600 31 Oct Bank 9370 31 Oct Balance 5300 15500 15500 1 Nov Balance 5300 b) Creditors Control 31 Oct Stock control/GST clearing 330 1 Oct Balance 5900 31 Oct Discount revenue 500 31 Oct Stock control 10560 31 Oct Bank 10330 31 Oct Balance 5300 16460 16460 1 Nov Balance 5300 c) Creditors Control 31 Oct Stock control 300 1 Oct Balance 5900 31 Oct Discount revenue 500 31 Oct Stock control/GST clearing 10560 31 Oct Bank 10360 31 Oct Balance 5300 16460 16460 1 Nov Balance 5300 d) Creditors Control 31 Oct Stock control/GST clearing 330 1 Oct Balance 5900 31 Oct Discount revenue 500 31 Oct Stock control/GST clearing 10560 31 Oct Bank 10330 31 Oct Balance 5300 16460 16460 1 Nov Balance 5300
  4. 4. VCE ACCOUNTING UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE CHAPTER 21 – BUDGETING © Michael Allison, Trinity Grammar School. Author’s permission required for external use Page | 4 The following statement was supplied by the owner of a small business. The firm is about to prepare a budget for January 2015. Balance Sheet as at 31 December 2014 Assets $ $ Liabilities $ $ Cash at bank 7,000 Accrued advertising 200 Debtors control 5,400 Creditors control 10,100 Stock control 36,300 GST clearing 500 Furniture 2,900 Loan 6000 16,800 Shop fittings 18,000 Owner’s Equity less Accumulated depreciation 4,000 14,000 Capital 48,800 Total Assets 65,600 65,600 Additional information:  Sales for January 2015 are expected to be: cash $17,000 (plus $1,700 GST) and credit $6,200 (plus $620 GST). All debtors usually pay in the month after sale and are granted a 5% discount.  All stock is purchased on credit. During January, it is expected that stock purchases will be $12,500 (plus $1,250 GST). All creditors are paid in the month after stock is purchased.  The closing balance of stock at the end of January is expected to be $1,500 higher than at the start of the month.  The firm’s regular monthly expenses are budgeted at wages $1,700, office expenses $400 (plus $40 GST), rent $4,000 (plus $400 GST) and advertising $300 (plus $30 GST). All of these items will be paid during January, as well as the $200 of accrued advertising owing for the month of December (plus $20 GST).  The shop fittings are depreciated at the rate of 10% per annum on cost.  Interest on the loan is calculated at a rate of 10% per annum and is payable on the last day of March, June, September and December.  A second-hand delivery van will be purchased during January for $10,000 (no GST) from Ace Vehicles, with $6,000 being paid in January and the balance in February.  The owner usually withdraws $600 cash per week from the business for personal use. 3. The treatment of advertising in the Budgeted Cash Flow Statement and Budgeted Income Statement will be: a) Budgeted Cash Flow Statement Budgeted Income Statement Operating Activities $ less Other Expenses $ Advertising (200) Advertising 300 Accrued advertising (300)
  5. 5. VCE ACCOUNTING UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE CHAPTER 21 – BUDGETING © Michael Allison, Trinity Grammar School. Author’s permission required for external use Page | 5 b) Budgeted Cash Flow Statement Budgeted Income Statement Operating Activities $ less Other Expenses $ Advertising (300) Advertising 500 Accrued advertising (200) c) Budgeted Cash Flow Statement Budgeted Income Statement Operating Activities $ less Other Expenses $ Advertising (300) Advertising 300 Accrued advertising (200) d) Budgeted Cash Flow Statement Budgeted Income Statement Operating Activities $ less Other Expenses $ Advertising (300) Advertising 300 4. The treatment of the interest expense in the firm’s financial reports will be: a) Budgeted Cash Flow Statement Budgeted Income Statement Budgeted Balance Sheet Operating Activities $ less Other Expenses $ Current Liabilities $ Interest expense 50 Accrued interest 50 b) Budgeted Cash Flow Statement Budgeted Income Statement Budgeted Balance Sheet Operating Activities $ less Other Expenses $ Current Liabilities $ Interest expense (50) Interest expense 50 Accrued interest 50 c) Budgeted Cash Flow Statement Budgeted Income Statement Budgeted Balance Sheet Operating Activities $ less Other Expenses $ Current Liabilities $ Interest expense (50) Accrued interest 50 d) Budgeted Cash Flow Statement Budgeted Income Statement Budgeted Balance Sheet Operating Activities $ less Other Expenses $ Current Liabilities $ Interest expense 600 Accrued interest 600 5. The firm’s cost of sales for the month will be: a) $12,250 b) $12,500 c) $13,750 d) $11,000
  6. 6. VCE ACCOUNTING UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE CHAPTER 21 – BUDGETING © Michael Allison, Trinity Grammar School. Author’s permission required for external use Page | 6 6. For the budgeted period, the firm’s GST Clearing ledger will be: a) GST Clearing 31 Jan Bank 470 1 Jan Balance 500 31 Jan Creditors control 1250 31 Jan Bank 1700 31 Jan Balance 1100 31 Jan Debtors control 620 2820 2820 1 Feb Balance 1100 b) GST Clearing 1 Jan Balance 500 31 Jan Bank 470 31 Jan Bank 1700 31 Jan Creditors control 1250 31 Jan Debtors control 620 31 Jan Balance 1100 2820 2820 1 Jan Balance 1100 c) GST Clearing 31 Jan Bank 1700 1 Jan Balance 500 31 Jan Debtors control 620 31 Jan Bank 490 31 Jan Creditors control 1250 31 Jan Balance 80 2320 2320 1 Feb Balance 80 d) GST Clearing 31 Jan Bank 490 1 Jan Balance 500 31 Jan Creditors control 1250 31 Jan Bank 1700 31 Jan Balance 1080 31 Jan Debtors control 620 2820 2820 1 Feb Balance 1080
  7. 7. VCE ACCOUNTING UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE CHAPTER 21 – BUDGETING © Michael Allison, Trinity Grammar School. Author’s permission required for external use Page | 7 7. The Current Liabilities section of the firm’s Budgeted Balance Sheet look like: a) Budgeted Balance Sheet as at 31 January 2015 Current Liabilities $ $ GST clearing 1080 Creditors control 13750 Accrued interest 50 14880 b) Budgeted Balance Sheet as at 31 January 2015 Current Liabilities $ $ GST clearing 1080 Creditors control 13750 Sundry creditor – Ace Vehicles 4000 Accrued interest 600 19430 c) Budgeted Balance Sheet as at 31 January 2015 Current Liabilities $ $ GST clearing 1080 Creditors control 13750 Sundry creditor – Ace Vehicles 4000 Accrued interest 50 18880 d) Budgeted Balance Sheet as at 31 January 2015 Current Liabilities $ $ GST clearing 1080 Creditors control 17750 Accrued interest 50 18880 On 30 September 2015, the Balance Sheet of a small business showed the following item: Current Assets $ Prepaid insurance 1,500 Non-Current Assets Term deposit 12,000 The prepaid insurance relates to a yearly premium that was taken out and paid for by the firm on 1 August 2015. The term deposit was taken out on 1 January 2013 and is earning 11% per annum. Interest is paid quarterly on the last day of March, June, September and December.
  8. 8. VCE ACCOUNTING UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE CHAPTER 21 – BUDGETING © Michael Allison, Trinity Grammar School. Author’s permission required for external use Page | 8 8. In preparing the budgeted financial reports for the month of October 2015, the insurance expense and prepaid insurance will be reported as: a) Budgeted Income Statement Budgeted Balance Sheet less Other Expenses $ Current Assets $ Insurance 300 Prepaid insurance 1,200 b) Budgeted Income Statement Budgeted Balance Sheet less Other Expenses $ Current Assets $ Insurance 1,500 Prepaid insurance 0 c) Budgeted Income Statement Budgeted Balance Sheet less Other Expenses $ Current Assets $ Insurance 200 Prepaid insurance 1,300 d) Budgeted Income Statement Budgeted Balance Sheet less Other Expenses $ Current Assets $ Insurance 150 Prepaid insurance 1,350 9. In preparing the budgeted financial reports for the month of October 2015, the insurance expense and prepaid insurance will be reported as: a) Budgeted Income Statement Budgeted Balance Sheet plus Other Revenue $ Current Assets $ Interest 1,320 Accrued interest 1,320 b) Budgeted Income Statement Budgeted Balance Sheet less Other Expenses $ Current Assets $ Interest 110 Accrued interest 110 c) Budgeted Income Statement Budgeted Balance Sheet plus Other Revenue $ Current Assets $ Interest 110 Accrued interest 110 d) Budgeted Income Statement Budgeted Balance Sheet plus Other Revenue $ Current Liabilities $ Interest 110 Accrued interest 110
  9. 9. VCE ACCOUNTING UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE CHAPTER 21 – BUDGETING © Michael Allison, Trinity Grammar School. Author’s permission required for external use Page | 9 A firm is preparing a budget for October to December 2015. The Balance Sheet as at 30 September 2015 revealed the following: Non-Current Assets $ $ Shop fittings 20,000 less Accumulated depreciation 6,000 14,000 Office furniture 7,000 less Accumulated depreciation 2,800 4,200 Shop fittings are depreciated at the rate of 15% per annum using the reducing balance method and office furniture 20% per annum using the straight-line method. 10. The amount of depreciation shown for the shop fittings and office furniture in the firm’s Budgeted Income Statement for the quarter ended 31 December 2015 will be: Shop fittings Office furniture a) $525 $350 b) $2,100 $1,400 c) $525 $210 d) $250 $350 11. The business had budgeted for sales of $16,400 (plus $1,640 GST) for the quarter. A fixed mark- up of 60% is applied to stock. The budgeted cost of sales for the period is: a) $9,840 b) $6,338 c) $10,250 d) $11,275 12. The firm’s cost of sales for the corresponding period last year were $5,200. A 120% mark-up was applied. The sales for the business were: a) $5,720 b) $11,440 c) $5,200 d) $10,400
  10. 10. VCE ACCOUNTING UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE CHAPTER 21 – BUDGETING © Michael Allison, Trinity Grammar School. Author’s permission required for external use Page | 10 13. In a Budget Variance Report, a favourable variance is always: a) Where the actual result is worse than the budgeted result b) Where the actual result is more than the budgeted result c) Where the actual result is less than the budgeted result d) Where the actual result is better than the budgeted result 14. In a Budget Variance Report, an unfavourable variance is always: a) Where the actual result is better than the budgeted result b) Where the actual result is worse than the budgeted result c) Where the actual result is more than the budgeted result d) Where the actual result is less than the budgeted result 15. The steps in the budgeting process are: a) b) c) d) Step 1 Compare actual and budgeted results Compare actual and budgeted results Compare actual and budgeted results Prepare a new budget Step 2 Identify any significant variances Take corrective action Identify any significant variances Compare actual and budgeted results Step 3 Prepare a new budget Identify any significant variances Take corrective action Identify any significant variances Step 4 Take corrective action Prepare a new budget Prepare a new budget Take corrective action 16. Firm A prepares budgets on a monthly basis whereas Firm B budgets once every year. This means that: a) Firm A will be better able to identify significant issues and take corrective action before they cause a major impact on the firm’s operations b) Firm A will not be able to budget effectively because it is taking a short-term view of its operations c) Firm B will have greater control over its operations because it adopts long-term planning d) Firm A will not be able to see the long-term trends affecting the business and corrective action can’t be taken
  11. 11. VCE ACCOUNTING UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE CHAPTER 21 – BUDGETING © Michael Allison, Trinity Grammar School. Author’s permission required for external use Page | 11 Below is an extract of an incomplete Budget Variance Report for the Cash Flow Statement of a small business. Variance Item Budget $ Actual $ $ F / U % Cash sales 15,000 17,000 2,000 Collections from debtors 11,200 10,400 800 Telephone (100) (150) 50 Wages (5,600) (6,900) 1,300 Advertising (2,300) (2,900) 600 Rent (2,000) (2,000) 0 Purchase of vehicle 0 (6,000) 6,000 Capital contribution 4,000 0 4,000 Drawings (1,600) (2,000) 400 17. The variances for cash sales and collections from debtors are: Cash sales Collections from debtors a) Favourable Favourable b) Unfavourable Favourable c) Unfavourable Unfavourable d) Favourable Unfavourable 18. The variance in cash sales is best explained by which of the following items? a) Wages b) Advertising c) Rent d) Wages and advertising 19. The percentage variance for telephone expenses paid is: a) 100% b) 50% c) 150% d) 33% 20. The variance for rent is: a) Favourable b) Neither favourable nor unfavourable c) Unfavourable d) Significant
  12. 12. VCE ACCOUNTING UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE CHAPTER 21 – BUDGETING © Michael Allison, Trinity Grammar School. Author’s permission required for external use Page | 12 21. The variances for the capital contribution and drawings are: Capital contribution Drawings a) Unfavourable Unfavourable b) Unfavourable Favourable c) Favourable Favourable d) Favourable Unfavourable 22. The percentage variance for the capital contribution is: a) 0% b) 50% c) 100% d) Is not listed in the Budget Variance Report because no capital was contributed 23. The variance for the purchase of vehicle means that during the period: a) The business budgeted to buy a vehicle but did not buy one b) The business purchased a vehicle it did not budget for c) The business purchased a vehicle but budgeted for a more expensive vehicle d) The business charged a greater rate of depreciation than budgeted for 24. In last period’s Budget Variance Report, an item was listed under “interest”. The owner is unsure whether this related to a cash inflow (interest revenue) or a cash outflow (interest expense). The item will be a cash outflow (interest expense) if: a) The actual amount was greater than the budgeted amount and the variance was favourable b) The actual amount was greater than the budgeted amount and the variance was unfavourable c) The actual amount was less than the budgeted amount and the variance was unfavourable d) The actual amount was more than the budgeted amount and the variance was favourable
  13. 13. VCE ACCOUNTING UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE CHAPTER 21 – BUDGETING © Michael Allison, Trinity Grammar School. Author’s permission required for external use Page | 13 Below is an extract of an incomplete Budget Variance Report for the Income Statement of a small business. Variance Item Budget $ Actual $ $ F / U % Cash sales 21,000 18,000 3,000 Credit sales 2,000 3,800 1,800 Cost of sales 11,500 13,200 1,700 Bad debts 300 1,000 700 Insurance 240 240 0 Depreciation – Vehicles 2,500 1,500 1,000 Wages 4,000 4,100 100 25. The percentage variance for cash sales is: a) 16.7% b) 14.3% c) 30.0% d) 85.7% 26. The variances for credit sales and bad debts are: Credit sales Bad debts a) Favourable Favourable b) Unfavourable Favourable c) Favourable Unfavourable d) Unfavourable Unfavourable 27. Which of the following is not a valid explanation for the variance in bad debts? a) Credit sales were much higher than expected b) Credit terms were changed from 2/14, n30 to 10/30, n60 c) The firm hired debt collectors to collect amounts outstanding from debtors d) The firm decided to stop performing background checks because it increased wages 28. Which of the following is not a possible explanation for the variance in cost of sales: a) Cost of sales increased because sales increased b) Suppliers increased the price of stock purchased c) The firm reduced the mark-up on stock sold d) The firm decided to use product costing for $1,700 of buying expenses rather than period costing as planned 29. Other than the firm lowering the rate of depreciation, the reason for the variance in depreciation of vehicles is: a) The firm unexpectedly purchased an additional vehicle during the period b) The firm unexpectedly sold a vehicle during the period c) The firm sold a vehicle during the period as planned d) The firm purchased an additional vehicle during the period as planned
  14. 14. VCE ACCOUNTING UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE CHAPTER 21 – BUDGETING © Michael Allison, Trinity Grammar School. Author’s permission required for external use Page | 14 An extract from last period’s Budget Variance Report for the Income Statement showed: Variance Item Budget $ Actual $ $ F / U % Discount 400 450 50 F 12.5% Unfortunately the owner of the business can’t remember if the “discount” above was a revenue, expense, cash inflow or cash outflow. 30. Based on the Budget Variance Report above, the “discount” is: a) Revenue b) Expense c) Cash inflow d) Cash outflow

Chapter 21 Budgeting - Test 2

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