If 2011 Is the Base Year and the Inflation Rate

question 149

Multiple Choice

If 2011 is the base year and the inflation rate between 2011 and 2012 is -4.5,the price index in 2012 is

• A)104.5.
• B)95.5.
• C)-145.0.
• D)cannot be determined from this information because the base year is not known

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Definitions:

Historical Cost Principle

An accounting principle that requires assets to be recorded and reported at their purchase price, without adjustments for inflation or market value changes.

Owner's Equity

The value that accrues to the owners of a company after settling all its debts, equivalent to the assets minus the liabilities.

Residual Equity

Residual Equity represents the amount of equity that remains for the common shareholders after all liabilities and preferential stock claims have been settled.

Assets

Assets are possessions of an individual or a business that hold value and can yield benefits in the future.