Which of the following statements is true regarding dividend income? A) Dividend

Question

Which of the following statements is true regarding dividend income?
A) Dividend income appears in the stockholders' equity section of the balance sheet.
B) Dividend income is reported on the income statement
C) Dividend income is accrued at year-end
D) Dividend income is recognized by companies that own debt securities.

Which one of the following is an investing activity on the statement of cash flows?
A) collection of accounts receivable
B) receipt of dividends
C) receipt of interest
D) Purchase of long-term Investments

Which one of the following is NOT an accurate statement regarding the direct write-off method of accounting for bad debts?
A) Under the direct write-off method, an expense is increase.
B) the allowance method for bad debts violates the matching principle, but the direct write-off method does not.
C) the direct write-off method has some deficiencies when accounting for bad debts.
D) the direct write-off method ignores the possibility that partial collection of a companys' outstanding accounts receivable may occur.

Explanation / Answer

1.Which of the following statements is true regarding dividend income?

Answer- B)Dividend income is reported on the income statement.

It is shown as Dividend income in the income statement and reduced from the investment under the equity method.

2.Which one of the following is an investing activity on the statement of cash flows ?

Answer-D) Purchase of long-term Investments

Please note that B) and C) is also investment activity . But some experts count this as operating activity.

3.Which one of the following is NOT an accurate statement regarding the direct write-off method of accounting for bad debts?

B) the allowance method for bad debts violates the matching principle, but the direct write-off method does not.

Although the direct write-off method is simple, it has a major drawback. Often it violates the matching principle of accounting because it recognizes bad debt expense which is partly related to previous accounting period. For example if sales are made at the end of accounting year 20X1, bad debts will be realized in the beginning months of accounting year 20X2. Thus the use of direct write-off method would cause deduction of expenses of previous period against revenue of current period which is contrary to the matching principle of accounting.

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