Question

ITS8h2 Name: Issourcisse Quiz 3B Directions: Circle the best answers. Use PENCIL only else you will receive a ZERO NO PENS. 1. Under the general rule of revenue recognition, revenue is recognized when a marketability and market price are assured. b. a contractual agreement exists, and cash collection is assured. c/ all related expenses have been incurred. the earnings process is complete, and a valid promise of payment has been received 2. Which of the following is NOT an acceptable basis for the recognition of expenses? Direct matching 6. Cash disbursement c. Immediate recognition d. Systematic and rational allocation 3. On a nyultiple-step income statement, gains or losses on sale of equipment would be shown a. foefore gross profit on sales. 6 after gross profit on sales but before income from continuing operations. after income from continuing operations but net income. d. after income taxes expense but before net income. 4. A single-step income statement is a format that a compares the current year's income with last year's income. b., recognizes subtotals at intermediate stages such as gross margin. combines revenues and gains and subtracts from them expenses and losses, esulting in income from operations d. reports sales revenue, cost of goods sold, gross margin, and all other expenses 5. When a business segment is discontinued during the year, the gain or loss on disposal a. is reported as an investment item. b. should include only the loss or income from operating the discontinued segment for the current period. excludes only the gain or loss on disposal of the segment. should be shown net of applicable income taxes.

Answer 1

When multiple questions being asked, as a rule, only One (1) question can be answered at a time. In case no specific question is requested (maximum of 1), the first question is itself only answered.
Kindly post the other questions individually separately.

Q: Revenue is recognized when:

Appropriate response: (d) The earning process is complete, and a valid promise of payment has been received.

Justification: Revenue recognition is a generally accepted accounting principle (GAAP), therefore specific conditions have been identified, on the basis of which revenue is recognized.
Thus, three major conditions are required to be fulfilled for revenue to be recognized:

• When the critical event has occurred, i.e when the earnings process is complete
• the dollar amount is easily measurable to the company, and
• reasonable certainty as to the collectibility of the monies to be received, i.e valid promise of payment has been received

Therefore, from the above it is clear that option (d) is the most appropriate.

Ruling out of other options:
(a) marketability and market price are assured: under this, the critical event is assured, but it has not occurred. Further, only the market price is assured, but there is no certainty that it will be collectible. Therefore, it is not the appropriate response.
(b) Contractual agreement exists and cash collection is assured: under this, the critical event is existing, however, it has not yet occurred. Therefore, it is not the appropriate response.
(c) all related expenses have been incurred: under this it is unclear if the critical event has occurred, and about the certainty of collection. Therefore, it is not the appropriate response.