A. When balance sheet amounts are used together with an income statement amount, the balance sheet amount used should be an average for the same period as is covered by the income statement item. This is important because it prevents the ratio from being distorted by an unusually high or low balance sheet amount at the end of the year.

B. Comparisons with industry ratios are meaningful, even in the situation in which the ratio compares a balance sheet amount to an income statement amount.

C. This answer is incorrect. There is no market value of an income statement item and it may be very difficult, if not impossible, to convert some balance sheet items to a market value.

D. Because the income statement records the effects of transactions over a period of time, they cannot be averaged.