In a Period of Rising Sales, Utilizing Past Cost and Expense

question 41

Multiple Choice

In a period of rising sales, utilizing past cost and expense ratios (percent-of-sales method) , when preparing pro forma financial statements and planning financing, will tend to

• A) overstate retained earnings and understate the financing needed.
• B) overstate retained earnings and overstate the additional financing needed.
• C) understate retained earnings and overstate the financing needed.
• D) understate retained earnings and understate the additional financing needed.

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Definitions:

Brokers

Individuals or firms that act as intermediaries between buyers and sellers, often in financial markets, facilitating transactions for a commission or fee.

Federal Open Markets Committee

Fed body that has primary responsibility for money policy.

Bank Mergers

A process where two or more banks consolidate their assets and operations to form a single, larger entity.

Lending Standards

Criteria set by financial institutions to determine the creditworthiness of borrowers.