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

question 16

Multiple Choice

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

• A) overstate costs and understate profits.
• B) understate costs and understate profits.
• C) understate costs and overstate profits.
• D) overstate costs and overstate profits.

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Definitions:

Photosynthesis

The process by which green plants, algae, and certain bacteria transform light energy into chemical energy, using carbon dioxide and water to produce glucose and release oxygen.

Chloroplasts

Chloroplasts are organelles found in plant and algal cells that conduct photosynthesis, converting light energy into chemical energy stored in sugar molecules.

Solar Energy

Energy from the Sun that is converted into thermal or electrical energy, a renewable and sustainable source of power.

Mitochondria

Organelles found in the cytoplasm of eukaryotic cells that generate most of the cell's supply of adenosine triphosphate (ATP), used as a source of chemical energy.