1. A company's independent auditor is currently insisting that certain sales made on credit be reported on the financial statements using the installment sales method rather than traditional accrual accounting rules. Which of the following is the most logical explanation for that decision?
a. The company cannot estimate the amount of bad debt expense associated with these sales.
b. The company estimates that bad debts will be 30 percent of all sales.
c. Collection of the accounts receivable will take longer than one year.
d. The earning process on these sales was not substantially completed in the current year.
2. Your company is getting ready to construct a bridge across the Mississippi River. The job is 10 percent complete after the first year. You are trying to decide between using the percentage of completion method and the completed contract method. Which of the following would be most likely to cause you to use the completed contract method?
a. Your company is constructing the bridge for the state of Mississippi.
b. You have constructed buildings previously but not bridges.
c. The 10 percent is a reasonable estimation but not a perfect estimation.
d. The job should take three more years to complete but might take four.