Which of the Following Businesses Must Use the Accrual Method

question 53

Multiple Choice

Which of the following businesses must use the accrual method of accounting?
I.Pryor and Ransom, a local law firm with annual gross receipts of $650,000.
II.Mayson Manufacturing, which has annual gross receipts of $30,000,000.
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• A)Only statement I is correct.
• B)Only statement II is correct.
• C)Both statements are correct.
• D)Neither statement is correct.

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Definitions:

CVP Income Statement

A variant of the income statement based on cost-volume-profit analysis, highlighting how costs and volume affect profit.

Margin of Safety

The difference between actual or projected sales and the break-even point, used as a measure of risk reduction.

Contribution Margin Ratio

The percentage of sales that exceeds variable costs, showing how much revenue is available to cover fixed costs and generate profit.

Fixed Costs

Costs that remain constant regardless of a company's level of activity, including expenses like rent, salaries, and insurance.