A. Pro forma financial statements are not used for comparison with actual results in order to determine employee bonuses. Comparing actual results to planned results for the purpose of performance reporting is done by comparing the actual to either the flexible budget or the master budget. A pro forma financial statement may be prepared as a part of the formal planning process that eventually results in the master budget or the flexible budget. Or pro forma statements may be prepared after the formal budget for the year has been adopted, if the company is considering an activity that was not foreseen before the formal budget was adopted. And if a pro forma statement has been prepared for an activity being considered, actual results will probably be compared with the pro forma statement in order to determine whether the company's objectives were met. But pro forma statements are not used for formal performance reporting to determine employee bonuses.
B. One of the purposes of pro forma financial statements is determining in advance what the company's future
financing needs will be.
C. One of the purposes of pro forma financial statements is determining whether the company will be in
compliance with required covenants on its long-term debt.
D. One of the purposes of pro forma financial statements is for doing "what if" analysis, to forecast the effect of a proposed change such as a price increase that management anticipates will reduce the demand for the
product.
