You are comparing the current income statement of a firm to the pro forma income statement for next year. The pro forma is based on a four percent increase in sales. The firm is currently operating at 85 percent of capacity. Net working capital and all costs vary directly with sales. The tax rate and the dividend payout ratio are fixed. Given this information, which one of the following statements must be true?
A. The projected net income is equal to the current year's net income.
B. The tax rate will increase at the same rate as sales.
C. Retained earnings will increase by four percent over its current level.
D. Total assets will increase by less than four percent.
E. Total liabilities and owners' equity will increase by four percent.
Ans: D. Total assets will increase by less than four percent.
You might also like to view...
The economic entity assumption requires that the activities
A. Of different entities can be combined if all the entities are corporations B. Must be reported to the Securities and Exchange Commission C. Of a sole proprietorship cannot be distinguished from the personal economic events of its owners D. Of an entity be kept separate from the activities of its owner
Seller Skinner signed a 90 day exclusive right to sell listing with Broker Bill. Two weeks later, Skinner cancelled the listing with Bill and gave an open listing to Broker Carl and another open listing to Broker Paul. Three weeks later, Paul presented an offer to Skinner which the seller accepted. Which of the following is most correct?
a. Broker Bill only is entitled to a full commission b. A full commission will be divided equally between Bill, Carl, and Paul c. Broker Paul only is entitled to a full commission d. Paul is entitled to a full commission and Bill is entitled to a full commission as well