If the Pro Forma Balance Sheet Shows That Total Assets

question 95

Multiple Choice

If the pro forma balance sheet shows that total assets must increase by $400,000 while retaining a debt-equity ratio of 0.75 then:

• A) debt must increase by $300,000.
• B) equity must increase by the full $400,000.
• C) debt must increase by $171,429.
• D) equity must increase by $100,000.

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Definitions:

Long-term Assets

Assets that are expected to provide economic benefits to a company for a period longer than one year, such as real estate or equipment.

Exchange Rate

The price of one currency expressed in terms of another currency, determining how much of one currency can be exchanged for another.

Canadian Dollars

The official currency of Canada, represented by the symbol CAD.

Trading Securities

Financial instruments like stocks or bonds held by a firm, primarily for the purpose of selling them in the near term to realize a gain.