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:

Unsecured Loan

A loan that is issued and supported only by the borrower's creditworthiness, without the need for collateral.

Accounts Receivable

Money owed to a company by its customers for products or services that have been delivered or used but not yet paid for.