1. The use of the installment sales method of accounting to recognize revenue is
ID: 2580844 • Letter: 1
Question
1. The use of the installment sales method of accounting to recognize revenue is not in conformity with US GAAP and is nothing more than disguised "income smoothing 2. In recognition of enhanced demographic and economic considerations experts predict that more Fortune 500 companies will institute traditional defined benefit pension plans. 3. The following items are treated differently for accounting purposes than they are for tax purposes. Indicate whether the items are permanent differences or temporary differences. For temporary differences, indicate whether they will create deferred tax assets or deferred tax liabilities. a. Investments accounted for by the equity method. b. Fine for polluting. c. Estimated future warranty costs. d. Expenses incurred in obtaining tax-exempt revenue. e. Premiums paid on life insurance of officers (company is the beneficiary) When the right of return exists, revenue can be recognized at the point of sale if the seller can make reliable estimates of future retuns 4. 5. Due to fiscal strategic conservatism, there is typically a postretirement hiability for postretirement benefit plans since very few are funded 6. Expense timing differences typically result in deterred tax liailities as sucth amounts increase taxable income in future years.Explanation / Answer
1) False, Because the installment sales method is one of the several approaches used to recognize revenue under the US GAAP, specifically when revenue and expense are recognized at the time of cash collection rather than at the time of sale.Under the US GAAP, it is the principal method of revenue recognition when the recognition occurs subsequently to the sale.
2) False because in recognition of enhanced demographic and economic considerations, the experts prediction was retirement plan landscape is stablizing as fewer Fortune 500 companies shifting Defined Benefit Plans to 401(k)s.
4) True because when the right of return exists, the seller can record the sales revenue at the time of sale if the seller can estimate the rate of product returns. (the seller should be able to make a reasonable estimate of the amount of future product returns)
5) True because there are very few retirement plans are funded due to fiscal strategic conservatism.
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