A firm uses 2012 as the base year for its financial statements. The common-size, base-year statement for 2012 has an inventory value of 1.08. This is interpreted to mean that the 2009 inventory is equal to 108 percent of which one of the following?
A)2011 inventory
B)2011 total assets
C)2012 total assets
D)2011 inventory expressed as a percent of 2011 total assets
E)2012 inventory expressed as a percent of 2012 total assets

Question

Quizplus · Accepted Answer

Since 2012 is the base year, the common-size statement for that year will have a value of 100% for all items. Therefore, the 1.08 inventory value in the 2012 common-size statement must mean that the 2009 inventory is 108% of its value in 2011. To calculate this, we need to find the ratio of the 2009 inventory to the 2011 inventory, and then express that ratio as a percent of 2011 total assets. Therefore, the correct choice is D.

A Firm Uses 2012 as the Base Year for Its