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:

Payroll Register

A payroll register is a record that details the wages, deductions, and net pay of all employees for each pay period.

CPP Payable

Refers to the amount owed by companies or individuals for contributions to the Canada Pension Plan, a key component of Canada's public retirement system.

CPP Expense

Costs associated with the Canada Pension Plan contributions by an employer, representing a payroll expense.

Non-current Note

a long-term financial obligation or loan that is not due for repayment within the next year or operating cycle of the business.