Which of the Following Statements Is CORRECT

question 15

Multiple Choice

Which of the following statements is CORRECT?

• A) 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.
• B) 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.
• C) Dividends are paid with cash taken from the accumulated retained earnings account, hence dividend policy does not affect the AFN forecast.
• D) A negative AFN indicates that retained earnings and spontaneous liabilities are far more than sufficient to finance the additional assets needed.
• E) 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.

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Definitions:

Year 2

Commonly refers to the second year of operation or existence in various contexts, such as financial reporting or the lifespan of an asset.

Variable Costing

A method of costing that includes only variable costs - costs that change with the level of output - in the cost of goods sold and treats fixed overhead costs as period expenses.

For The Month

A phrase typically used to specify financial or operational activities or measurements within a specific month.

Variable Costing

An accounting method that only includes variable costs (costs that change with production levels) in the cost of goods sold and calculates fixed costs as period costs.