Question

Which one of the following is correct in relation to pro forma statements? Group of answer choices 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. Fixed assets must increase if sales are projected to increase. Long-term debt varies directly with sales when a firm is currently operating at maximum capacity. Inventory changes are not proportional to sales changes.

Answer 1

Answer:

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

Explanation:

Retained earnings is a budgeting device that allows free budgetary resources to be set aside so that management can be available at any time for unforeseen budgetary planning situations through additional credits and supplements. In short, retained earnings is a term that refers to a company's net worth. It is the allocation of the company's profits to a reserve that will absorb probable and estimable losses, such as natural disasters or strikes.

The addition that leads to retained earnings results from the equation represented by net income less cash dividends.