In a Period of Rising Sales Utilizing Past Cost and Expense

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