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    Basic concepts in accounting

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    True False
    1 Under the direct write-off method, no attempt is made to match bad debts expense to sales revenues in the same accounting period.
    2 Restricted retained earnings are available for preferred stock dividends but unavailable for common stock dividends.
    3 The statement of cash flows is a required statement that must be prepared along with an income statement, balance sheet, and retained earnings statement.
    4 In preparing a statement of cash flows, cash equivalents are subtracted from cash in order to compute the net change in cash during a period.
    5 The payment of interest on bonds payable is classified as a cash outflow from operating activities.
    6 The acquisition of a building by issuing bonds would be considered an investing and financing activity that did not affect cash.
    7 A $15,000, 8%, 9-month note payable requires an interest payment of $900 at maturity.
    8 Metropolitan Symphony sells 200 season tickets for $40,000 that includes a five-concert season. The amount of Unearned Ticket Revenue after the third concert is $24,000.
    9 Allowance for Doubtful Accounts is a contra asset account.
    10 An aging schedule is prepared only for old accounts receivables that have been past due for more than one year.
    11 Treasury stock purchased for $25 per share that is reissued at $20 per share, results in a Loss on Sale of Treasury Stock being recognized on the income statement.
    12 An aging of accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will eventually be collected.
    13 When the due date of a note is stated in months, the time factor in computing interest is the number of months divided by 360 days.
    14 Using the units of activity method of depreciating factory equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight-line method had been used.
    15 The declining-balance method of depreciation is called an accelerated depreciation method because it depreciates an asset in a shorter period of time than the asset's useful life.
    16 Once an asset is fully depreciated, no additional depreciation can be taken even though the asset is still being used by the business.
    17 The book value of a plant asset is the amount originally paid for the asset less anticipated salvage value.
    18 The amount of a cash dividend liability is recorded on the date of record because it is on that date that the persons or entities who will receive the dividend are identified.
    19 A loss on disposal of a plant asset can only occur if the cash proceeds received from the asset's sale is less than the asset's book value.
    20 Using vertical analysis of the income statement, a company's net income as a percentage of net sales is 15%; therefore, the cost of goods sold as a percentage of sales must be 85%.

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    Solution Summary

    This explains basic concepts of accounting like cash flow statement, depreciation, treasury stock, unearned revenue, doubtful debts.