Which of the Following Financing Methods Entails the Greatest Risk

question 58

Multiple Choice

Which of the following financing methods entails the greatest risk for importers?

• A)Documentary collection
• B)Advance payment
• C)Letter of credit
• D)Open account

Identify when and how revenue from installment sales and specific accounting transactions, like franchise fees and bundled sales, is recognized.

Understand the cost recovery method and its application in recognizing gross profit.

Analyze the flexibility and restrictions within GAAP regarding revenue recognition and the implications for earnings management.

Understand and calculate the contribution margin ratio and its significance in break-even analysis.

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Definitions:

Current Account Surplus

A situation where a country's total exports of goods, services, and transfers exceed its total imports.

Financial Accounts Deficit

A situation where a country's payments to other countries exceed its earnings from them, specifically in the realm of investment flows and financial transactions.

Capital Account

A national account that shows the net change in asset ownership for a nation, including assets in foreign investments and movements of capital.

Trade Deficit

A situation where a country's imports exceed its exports in value.