Which One of the Following Statements Is Correct About the Pro

question 185

Multiple Choice

Which one of the following statements is correct about the pro forma statements for a cost-cutting project which requires an initial investment in fixed assets?

• A) the depreciation expense has no effect on the cash flows
• B) the operating income is equal to the annual pre-tax cost savings
• C) the net income and the operating cash flow must both be positive
• D) the earnings before interest and taxes will be negative
• E) the tax amount must be negative if the project is acceptable

---

Definitions:

Balance Sheet

A financial statement that presents a company's financial position at a specific point in time, showing assets, liabilities, and shareholders' equity.

Allowance for Doubtful Accounts

A contra-asset account that represents the estimated amount of accounts receivable that may not be collected.

Aging of Accounts Receivable

A method used to estimate the collectability of accounts receivable by categorizing them according to the length of time an invoice has been outstanding.

Credit Sales

Credit Sales are transactions in which goods or services are provided to customers with the understanding that payment will be made at a later date.