You Are Comparing a Current Income Statement and a Pro

question 150

Multiple Choice

You are comparing a current income statement and a pro forma income statement for a firm. The pro forma statement reflects a 7% rate of growth. Both income statements include a common-size statement. The firm is currently operating at 80 percent of its capacity. On the pro forma statement, all costs increase at the same rate as sales. Given this,

• A) The net income shown on both statements is identical.
• B) The tax rate is assumed to increase at the same rate as the sales.
• C) Both common size income statements are identical.
• D) The projected increase in retained earnings is equal to the current increase in retained earnings.
• E) Total assets are required to also increase at a rate equal to the rate of sales growth.

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Definitions:

Bundle

A group of items or services sold together, often at a discounted price compared to purchasing each item separately.

Utility

A measure of happiness or satisfaction.

Indifference Curve

A graph showing different combinations of two goods that provide equal satisfaction and utility to a consumer.

Bundle

A collection of goods or services sold as a single package or unit.