In a Period of Rising Sales Utilizing Past Cost and Expense

question 147

Multiple Choice

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

• A) understate retained earnings and understate the additional financing needed
• B) overstate retained earnings and overstate the additional financing needed
• C) understate retained earnings and overstate the financing needed
• D) overstate retained earnings and understate the financing needed

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Definitions:

Horizontal Analysis

An accounting method that compares financial data across multiple periods to identify trends and growth patterns.

Trend Analysis

The practice of collecting information and attempting to spot a pattern or trend in the data, commonly used in financial analysis, market research, and operational management.

Dividend Yield

A financial ratio that shows how much a company pays out in dividends each year relative to its stock price.

Payout Ratios

Payout ratios indicate the proportion of earnings a company pays to its shareholders in the form of dividends, usually expressed as a percentage of net income.