Which of the Following Might Represent a Major Distortion Brought

question 36

Multiple Choice

Which of the following might represent a major distortion brought about by a move to implement "mark to market" accounting?

• A)A rise or fall in the market value of assets will not afford investors a better basis for assessing the future value of their investments.
• B)Uncertainty regarding whether the adjusted market prices reflect temporary or permanent changes to the asset's value may result in ambiguous signals when financial ratios are prepared.
• C)Financial statements represent historical information in that they reflect collective past performance (balance sheet) and the most recent past performance (income statement). As such, it is not necessary to adjust asset valuation to reflect current market values.
• D)Since prices change over time, "mark to market" is inferior to current accounting methods because a move to "mark to market" asset valuation will create a disconnect between past and future financial information.

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Definitions:

ETFs

Exchange-Traded Funds, which are investment funds traded on stock exchanges, much like stocks.

Turnover Ratio

A measure of how frequently investments or inventory are bought and sold within a given period, indicating the liquidity or activity level.

Average Daily Assets

The mean value of assets held over a specified period, calculated by taking the sum of daily asset values and dividing by the number of days in the period.

Stock

A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.