The Installment Method of Revenue Recognition Can Be Used When

question 53

Multiple Choice

The installment method of revenue recognition can be used when cash collectibility is uncertain.The installment method

• A) requires that no income is recognized until all installments are received.
• B) requires that gross profit is recognized as each installment payment is received.
• C) requires that entire cost of the sale be recovered prior to any income being recognized.
• D) allows revenue recognition at the time of the sale.

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Definitions:

Inventories

Goods and materials that a business holds for the ultimate goal of resale or processing.

Underapplied Manufacturing Overhead

Underapplied manufacturing overhead occurs when the allocated manufacturing overhead costs are less than the actual costs incurred, indicating a shortfall that needs to be addressed in financial accounts.

Overapplied Manufacturing Overhead

A situation where the allocated manufacturing overhead costs exceed the actual overhead costs incurred.

Adjusted Cost

The net cost of an asset after adjustments for factors such as depreciation, improvements, or disposals, used in financial and tax reporting.