Utilizing Past Cost and Expense Ratios (Percent-Of-Sales Method) When Preparing

question 59

Multiple Choice

Utilizing past cost and expense ratios (percent-of-sales method) when preparing pro forma financial statements will tend to

• A) neither understate nor overstate profits.
• B) understate profits when sales are increasing.
• C) understate profits when sales are decreasing.
• D) overstate profits when sales are increasing.

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Definitions:

Bolivars

The currency of Venezuela.

Uncovered Interest Rate Parity

A theory suggesting that the difference between the interest rates of two countries will equal the expected change in exchange rates between the countries' currencies, without the protection of forward contracts.

Spot Rate

The current price or rate for immediate settlement of a commodity, security, or currency exchange.

Initial Cost

The upfront expenditure associated with the purchase or investment in an asset or project.