Which one of the following is correct in relation to pro forma statements?
A) Fixed assets must increase if sales are projected to increase.
B) Net working capital is affected only when a firm's sales are expected to exceed the firm's current production capacity.
C) The addition to retained earnings is equal to net income less cash dividends.
D) Long-term debt varies directly with sales when a firm is currently operating at maximum capacity.
E) Inventory changes are not proportional to sales changes.

Question

Quizplus · Accepted Answer

The addition to retained earnings is equal to net income less cash dividends. This is a basic principle of accounting and is true for both actual and pro forma statements. The other choices are either incorrect or too specific to be considered generally true for all pro forma statements.

Which One of the Following Is Correct in Relation to Pro