Final answer:
The net method is appropriate and correct for recognizing revenue in a principal-agent relationship, as it accurately reflects the agent's earnings from commissions or fees without including the full sales amount.
Step-by-step explanation:
The use of the net method of recognizing revenue by an agent is a question related to how revenue is reported in principal-agent relationships. In such relationships, an agent performs services on behalf of the principal and earns a commission or fee for these services. The correct answer is D) is the correct method in a principal-agent relationship. When using the net method, the agent only recognizes as revenue the commission or fee earned. The gross sales are not recorded as the agent's revenue as they do not represent the agent's earnings but rather the principal's. As a result, there is no risk of an overstatement or understatement of the agent's revenue if the net method is correctly applied.
The net method ensures that the agent's revenue reflects only the income that is attributable to the services provided by the agent. It maintains the accuracy and reliability of financial statements by not inflating the agent's revenue with the gross amount of sales that do not actually impact the agent's profitability.