What would happen to the net profit margin ratio if the company recorded a deferral adjusting entry at the end of 2012 for depreciation of $500 on one of its assets?
A) The net profit margin ratio would increase indicating an improvement in
B) performance.
C) The net profit margin ratio would decrease indicating less control over expenses.
D) The net profit margin ratio would not change.
E) The net profit margin ratio would have decreased in 2012 without this transaction.

Question

Quizplus · Accepted Answer

Recording a deferral adjusting entry for depreciation means that an expense that was previously not accounted for is now being recognized. This will decrease the net income and ultimately result in a decrease in the net profit margin ratio. Therefore, the correct choice is C - the net profit margin ratio would decrease indicating less control over expenses.

What Would Happen to the Net Profit Margin Ratio If