The Advantage of the Percent of Sales Method of Creating

question 35

Multiple Choice

The advantage of the Percent of Sales Method of creating pro forma statements is in its ability to

• A) Accommodate changing relationships between expenses and revenue
• B) Be created with ease and speed
• C) Model actual changes in the competitive environment
• D) Provide projections reflecting major shareholder beliefs and aims
• E) Reliably bring to management's attention key financing issues

---

Definitions:

Sales-type Lease

A lease agreement in which the lessor effectively transfers ownership and all risks and rewards of the asset to the lessee, resulting in immediate profit recognition.

Guaranteed Residual Value

The pre-determined value at which a leased asset is guaranteed to be worth at the end of the lease term, important for lease agreements.

Contingent Rentals

Lease payments that are not fixed but are instead based on the occurrence of a certain event or situation.