Which of the Following Statements Is CORRECT

question 3

Multiple Choice

Which of the following statements is CORRECT?

• A) The AFN equation for forecasting funds requirements requires only a forecast of the firm's balance sheet.Although a forecasted income statement may help clarify the results, income statement data are not essential because funds needed relate only to the balance sheet.
• B) Dividends are paid with cash taken from the accumulated retained earnings account, hence dividend policy does not affect the AFN forecast.
• C) A negative AFN indicates that retained earnings and spontaneous liabilities are far more than sufficient to finance the additional assets needed.
• D) If the ratios of assets to sales and spontaneous liabilities to sales do not remain constant, then the AFN equation will provide more accurate forecasts than the forecasted financial statements method.
• E) Any forecast of financial requirements involves determining how much money the firm will need, and this need is determined by adding together increases in assets and spontaneous liabilities and then subtracting operating income.

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Definitions:

Current Liabilities

Current Liabilities are a company's debts or obligations that are due to be paid within one year and are listed on the company’s balance sheet. They typically include accounts payable, short-term loans, and other accrued liabilities.

Principal Repaid

The amount of loan or debt's original borrowing that has been or is being paid back, excluding interest payments.

Long-Term Notes

Debt securities or loans with maturities extending beyond one year, typically used for long-term financing needs.

Gift Card Expense

The cost recognized by a company when a gift card is redeemed, reflecting the reduction in liability and recognition of revenue or expense.