In Which of the Following Cases, Under GAAP, Will a Company

question 25

Multiple Choice

In which of the following cases, under GAAP, will a company usually not be able to recognize revenues at the time of shipment?

• A) The customer has the right to return products. In the past, product returns have ranged from 5% to 7% of sales.
• B) The customer has bought on credit. In the past, bad debts have ranged from 3% to 5% of sales.
• C) The customer has bought on credit and has the right to return the goods for up to one year. This is a new market for the company.
• D) The customer has bought on credit, and has one year to pay. In the past, 93% of customers have in fact paid.

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Definitions:

Vertical Axis

The y-axis in a graph or chart, which typically represents the dependent variable in a data set.

Total Cost Curve

A graph that depicts how the total costs of production vary with the level of output.

Economic Profit

A measure of performance that captures the surplus generated from business activities after accounting for both explicit and implicit costs.

Shuts Down

A temporary or permanent cessation of operations by a firm when it is not covering variable costs of production or facing insolvency.