Which of the Following Statements Is Correct

question 76

Multiple Choice

Which of the following statements is correct?

• A) One of the key steps in the development of pro forma financial statements is to identify those assets and liabilities which increase spontaneously with net income.
• B) The first,and most critical,step in constructing a set of pro forma financial statements is establishing the sales forecast.
• C) Pro forma financial statements as discussed in the text are used primarily to assess a firm's historical performance.
• D) All else equal,if a firm operates at full capacity,the greater its payout ratio,the less additional funds that will be needed for a particular growth in sales.
• E) The projected balance sheet forecasting method produces accurate results when fixed assets are lumpy and when economies of scale are present.

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Definitions:

Noncontrolling Interest

A minority share of ownership in a subsidiary that is not enough to control its operations, held by investors outside of the parent company.

Net Income

The total profit of a company after all expenses, taxes, and costs have been subtracted from total revenue, indicating the company's financial performance over a specified period.

Acquisition Method

A set of accounting procedures used for consolidating the financial statements of a parent company and its subsidiaries.