Which of the Following Statements Is Incorrect

question 6

Multiple Choice

Which of the following statements is incorrect?

• A)Companies where product costs represent a high percentage of total costs would be expected to have a low gross profit percentage.
• B)A company's current financial ratio should be compared with the same financial ratio for 1) that company in prior years and/or 2) the ratio for the industry in which the company is affiliated.
• C)Gross profit percentages do not vary a great deal among industries.
• D)Profitability evaluation ratios are better at predicting income and solvency than are solvency determination ratios.

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Definitions:

Effective Tax Rate

reflects the percentage of income paid as tax, taking into consideration both federal and state taxes, and deductions.

Consolidated Retained Earnings

The accumulated net income of a company after dividends are paid, combined from all its divisions or subsidiaries.

Equity Method

An accounting technique used to reflect the investment in another company, typically applied when the investor has significant influence over the investee but does not fully control it.

Acquisition Differential

The excess of the cost of an acquired company over the fair value of its identifiable net assets at the time of acquisition.