 Activity 2.

FALSE 1. The beginning step in financial forecasting is the

projection of sales.
TRUE 2. A rapidly growing firm may be more subject to a shortage
of funds than a declining firm.
TRUE 3. A cash budget is a historical financial statement
TRUE 4. The Percent-of-Sales Method is a shortcut approach to
constructing a pro forma income statement.
FALSE 5. A firm that engages in financial forecasting is assured
that the projected events will occur.
TRUE 6. Depreciation Expense is a primary consideration in
constructing a cash budget.
TRUE 7. A Corporation may experience cash shortages during an
accounting period even though it earns high profits.
TRUE 8. Financial forecasting is required by those external to
the firm as well as the management.
TRUE 9. A substantial portion of the increase in assets
necessitated by rising sales may be automatically financed
through accounts payable.
TRUE 10. A cash budget requires projection of receivables
collection as well as cash sales.