ACCT 3 - Part 3 Test Review

A line of credit does not have to be repaid as long as the business pays its monthly interest.

• True

• False

The gross profit method makes it possible to prepare monthly income statements without taking a physical inventory.

• True

• False

The LIFO method is used to determine the quantity of each type of merchandise on hand.

• True

• False

At any time, the accumulated depreciation for a plant asset owned by the company reflects next year’s estimated depreciation expense.

• True

• False

If cash is received for revenue that has not been earned, a liability is increased.

• True

• False

The payment of cash dividends is listed as an investing activity on the statement of cash flows.

• True

• False

The declining-balance method of depreciation multiplies the book value by a constant depreciation rate to determine annual depreciation.

• True

• False

A disadvantage of selling stock is that dividends must be paid to stockholders.

• True

• False

The adjusting entry for deferred rent expense incurred includes a credit to Prepaid Rent.

• True

• False

The statement of cash flows is prepared on a cash basis rather than an accrual basis.

• True

• False