Jim Operates His Business on the Accrual Method, and This

question 110

Multiple Choice

Jim operates his business on the accrual method, and this year, he received $4,000 for services that he intends to provide to his clients next year. Under what circumstances can Jim defer the recognition of the $4,000 of income until next year?

• A)Jim can defer the recognition of the income if he absolutely promises not to provide the services until next year.
• B)Jim must defer the recognition of the income until the income is earned.
• C)Jim can defer the recognition of the income if he has requested that the client not pay for the services until the services are provided.
• D)Jim can elect to defer the recognition of the income if the income is not recognized for financial accounting purposes.
• E)Jim can never defer the recognition of the prepayments of income.

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Definitions:

Investment Opportunity

A potential financial venture, project, or mechanism expected to yield returns or benefits.

Required Rate of Return

The minimum yearly return percentage required to attract individual or corporate investors to a specific security or project.

Operations

Pertains to the daily operations conducted in managing a business to create value for its stakeholders.

Chief Executive Officer

The highest-ranking executive in a company, responsible for making major corporate decisions, managing operations, and communicating with the board of directors.