131. What is the last step in preparing pro forma financial statements? Project the statement of cash flows from amounts on the projected balance sheet and income statement.B. Project operating...

131. What is the last step in preparing pro forma financial statements?


Project the statement of cash flows from amounts on the projected balance sheet and income statement.
B. Project operating revenues and operating expenses other than the cost of financing and income taxes.
C. Project the assets required to support the level of projected operating activity.
D. Project the financing (liabilities and contributed capital) required to fund the level of assets.
E. Project the cost of financing the debt, income tax expense, net income, dividends, and the change in retained earnings.

132. Why would a firm prepare pro forma financial statements?

A. to ascertain whether operations will generate sufficient cash flows to finance expenditures on long-term assets or whether the firm will need to borrow more
B. to analyze the effect of a change its product lines or pricing policies and the impact on rates of return.

C. to project future financial statement amounts for an acquisition target to ascertain the price it should pay

all of the above
E. none of the above

133. The traditional use of the term _____ financial statements refers to projected financial statements based on some set of assumptions about the future. One set of assumptions might be that historical patterns (for example, growth rates or rates of return) will continue.

A. what-if
B. estimated

C. planned

pro forma
E. future

134. The analysis of business transactions is facilitated by

A. reconciliation of bank balances at the end of the reporting period.
B. good internal controls and performing daily cash reconciliation.

developing an electronic spreadsheet showing the transactional effects.
D. maintaining a written copy of all invoices and receipts of the company for a period of at least 7 years.
E. None of these answer choices is correct.

135. In a modern corporate environment, the trial balance is prepared from the

A. financial statements.

computerized accounting systems.
C. journals.
D. subsidiary ledgers.
E. chart of accounts.

136. Ratio analysis is one tool management may use to examine a firm's profitability and risk. Another tool often used by management are pro forma financial statements.



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