Series 79 practice questionhardAdvanced Financial Analysis
A company’s pro forma balance sheet is being prepared in connection with a highly leveraged acquisition. Which of the following adjustments is most likely required due to new borrowings used to fund the deal?
- AReduce retained earnings
- BDecrease intangible assets
- CIncrease deferred tax assets
- DIncrease interest-bearing debt and reduce cash✓ Correct answer
Explanation
Why D — Increase interest-bearing debt and reduce cash
New borrowings will increase interest-bearing debt on the balance sheet, and if the proceeds are used for acquisition, cash will decrease. Other options do not directly reflect the mechanics of acquisition financing; this distinction is critical for accurate pro forma analysis.
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