Arid Lands,Inc

question 17

Multiple Choice

Arid Lands,Inc.is engaged in extensive exploration for water in the Caprock Desert.If upon discovery of water the corporation does not recognize any revenue from water sales until the sales exceed the costs of exploration,the basis of revenue recognition being employed is the

• A)Production basis
• B)Cash or collection)basis
• C)Sales or accrual)basis
• D)Sunk cost or cost recovery)basis

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Definitions:

Cash Flow Hedge

A form of hedge accounting that aims to offset exposures to variability in cash flows, attributable to a particular risk associated with a recognized asset or liability.

Forward Contract

A financial contract between two parties to buy or sell an asset at a specified future time at a price agreed upon at the time of the contract.

Net Method

is an accounting method for recording purchases where the purchase is recorded at net of any trade discounts received.

Profit Test

A financial analysis conducted to determine the profitability or financial viability of a project, business, or product.