You Are Comparing a Current Income Statement and a Pro

Multiple Choice

You are comparing a current income statement and a pro forma income statement for a firm. The pro forma statement reflects a 7% rate of growth. Both income statements include a common-size statement. The firm is currently operating at 80 percent of its capacity. On the pro forma statement, all costs increase at the same rate as sales. Given this,

A) The net income shown on both statements is identical.
B) The tax rate is assumed to increase at the same rate as the sales.
C) Both common size income statements are identical.
D) The projected increase in retained earnings is equal to the current increase in retained earnings.
E) Total assets are required to also increase at a rate equal to the rate of sales growth.