Utilizing Past Cost and Expense Ratios (Percent-Of-Sales Method) When Preparing

question 40

Multiple Choice

Utilizing past cost and expense ratios (percent-of-sales method) when preparing pro forma financial statements will tend to ________.

• A) understate profits when sales are decreasing and overstate profits when sales are increasing
• B) understate profits, no matter what the change in sales, as long as fixed costs are present
• C) understate profits when sales are increasing and overstate profits when sales are decreasing
• D) overstate profits, no matter what the change in sales, as long as fixed costs are present

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Definitions:

Limited Liability Company

A company organization that blends the direct taxation features of a partnership or sole proprietorship with the protective limited liability characteristic of a corporation.

Service Business

A type of business that provides intangible products, such as expertise, experience, or access, rather than physical goods.

Alternative

A term used to describe an option or choice among multiple possibilities, often referring to solutions, methods, or investments.

Limited Liability Company

A corporate form that merges the tax benefits of a sole proprietorship or partnership with the limited liability offered by a corporation.