Suppose You Know the Value of the Consumer Price Index $$\text { CPI in year } 1 = \frac { 100 \times \text { CPI in year } 2 } { \text { Inflation rate in year } 2 \times 100 }$$

question 216

Multiple Choice

Suppose you know the value of the consumer price index (CPI) in year 2 as well as the inflation rate in year 2. Which of the following equations is valid for the CPI in year 1?

• A)
• \[\text { CPI in year } 1 = \frac { 100 \times \text { CPI in year } 2 } { \text { Inflation rate in year } 2 \times 100 }\]
• B)
• \(\text { CPI in year } 1 = \frac { 100 + \text { CPI in year } 2 } { \text { Inflation rate in year } 2 + 100 }\)
• C)
• \[\text { CPI in year } 1 = \frac { 100 \times \text { CPI in year } 2 } { \text { Inflation rate in year } 2 + 100 }\]
• D)
• \[\mathrm { CPI } \text { in year } 1 = \frac { \text { CPI in year } 2 \div 100 } { \text { Inflation rate in year } 2 + 100 }\]

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Definitions:

Accounting Events

Transactions or occurrences that result in changes to the financial statements of a company, requiring recognition or disclosure.

Period-To-Period Consistency

An accounting principle ensuring the application of the same accounting methods and principles from one period to the next to ensure financial comparability.

Debits

Accounting entries that increase assets or expenses or decrease liabilities or equity on a company's balance sheet.

Credits

Accounting entries that increase liabilities or equity or decrease assets, representing the opposite effect of debits in the double-entry bookkeeping system.