18.10: Multiple Choice

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Which type of financial statement analysis is most commonly used to create a baseline estimate for a financial forecast?

Trend analysis
Common-size analysis
Ratio analysis
Liquidity analysis

What key element of the income statement is used to estimate several other key income statement lines?

Cost of goods sold
Gross margin
Sales
Fixed costs

Jamal wants to forecast sales for the first quarter of next year. His first assumption is that sales will likely grow by 3% in the coming year. If Jamal’s monthly sales were $10,000, $9,000, and $11,000 in the first quarter of this year, what should his sales forecast be for the first quarter of next year?

$30,000
$30,900
$33,000
$33,500

In the context of a firm’s financial statements, what does pro forma mean?

Forward looking
Historical
Board approved
Audited

What is the most common length of a forecast if the goal is to forecast cash and assess possible short-term growth?

3 months
12 months
3 years
5 years

When completing a first pass at a forecasted income statement, which type of costs are assumed to be tied directly to sales?

Fixed costs
Period costs
Variable costs
Sunk costs

In the cash forecast, if cash inflows exceed cash outflows, what does this create?

A cash surplus
A cash deficit
A long-term liability
An undeclared dividend

Amelia wants to use a formula in Excel to estimate her utilities expense for each month. She normally pays her utilities within 30 days. What formula or link might she use in Excel to estimate her cash outflow for utilities?

Sum the past three months’ cost of goods sold from the forecasted income statement
Link to the prior month’s accounts payable from the forecasted balance sheet
Link to the prior month’s utilities expense from the forecasted balance sheet
Link to the prior month’s ending cash balance from the cash flow forecast

Amelia wants to use a formula in Excel to estimate her sales for each month. She believes her sales for the next year will be about 7% higher than this year’s. She also has a big new ad campaign running late this year that she thinks will add another $5,000 to January sales. Which of the following is an appropriate Excel formula for Amelia’s January sales?

=(lastyearsalesA2*1.07)+5000
=(lastyearsales+5000*1.07)
=lastyearsalesA2+5000*.07
=lastyearsalesA2*5000*1.07