Question

Pick the correct statement related to pro forma statements from below. Multiple Choice Fixed assets must increase if sales are projected to increase. Net working capital is affected only when a firm's sales are expected to exceed the firm's current production capacity. The addition to retained earnings is equal to net income less cash dividends. Long-term debt varies directly with sales when a firm is currently operating at maximum capacity.

Answer 1

Answer:

The correct statement related to the pro forma statements is:

The addition to retained earnings is equal to net income less cash dividends.

Explanation:

When the beginning retained earnings are increased by the addition to retained earnings, it means that the cash dividends have been subtracted from the net income.  This addition is the leftover net income after offsetting the dividends.  It increases the retained earnings by the end of the financial period.