The Use of Past Cost and Expense Ratios Generally Tends

question 67

True/False

The use of past cost and expense ratios generally tends to overstate profits when sales are increasing and understate profits when sales are decreasing.

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Definitions:

Cash Distributions

Payments made in cash by a corporation to its shareholders, typically from earnings or profits.

Tax-exempt Income

Income that is not subject to federal income tax, such as certain interest income from municipal bonds.

Ordinary Income

Income earned from standard operations, subject to standard tax rates, including wages, salaries, commissions, and interest.

Distributed

In finance, refers to the allocation of dividends or other payouts to shareholders from a corporation's earnings.