Question 1

Property, plant and equipment are shown before current assets on a classified balance sheet.

Accepted Answer

In a classified balance sheet, current assets are typically listed before non-current assets like property, plant, and equipment.

Question 2

The bookkeeper recorded prepaying rent in the amount of $1,200 incorrectly as $2,100. Which of the following journal entries will correct the ledger accounts if the business records prepaying expenses by debiting an asset account?

Accepted Answer

The correct entry to adjust the overstatement of prepaid rent involves decreasing the Prepaid Rent Expense account (an asset) by $900 to correct the error (from $2,100 to the correct amount of $1,200) and decreasing Cash (another asset) by the same amount to balance the entry, as no actual cash movement occurs with this correcting entry.

Question 3

All of the following are property, plant and equipment except:

Accepted Answer

Office supplies are considered current assets, not property, plant, and equipment (PP&E), because they are consumed within a short period of time, unlike land, buildings, and equipment which are long-term assets.

Question 4

Assets that are expected to be converted to cash, sold, or consumed during the next 12 months or within the business's normal operating cycle if longer than a year are referred to as:

Accepted Answer

Current assets are assets that a company expects to convert to cash, sell, or consume either within one year or within the operating cycle of the business, whichever is longer. This category includes items like cash, accounts receivable, and inventory.

Question 5

Debts that are due to be paid within one year or within the entity's operating cycle, whichever is longer, are called:

Accepted Answer

Current liabilities are financial obligations that a company is expected to pay within one year or within its operating cycle, whichever is longer. This includes debts such as accounts payable, short-term loans, and other similar obligations.

Question 6

A review of the accounting records discovered that unearned rent revenue received from a client in the amount of $1,500 had been incorrectly recorded as $2,200. Which of the following journal entries will correct the ledger accounts?

Accepted Answer

The answer of A review of the accounting records discovered...

Question 7

On the income statement, revenues and expenses are classified as either current or long-term to indicate their relative liquidity.

Accepted Answer

On the income statement, revenues and expenses are not classified as current or long-term; this classification is used on the balance sheet for assets and liabilities to indicate their liquidity or solvency. The income statement focuses on showing the company's profitability over a period, detailing revenues and expenses without classifying them by their liquidity.

Question 8

The measure of how quickly an item can be converted to cash is referred to as:

Accepted Answer

Liquidity refers to how quickly and easily an asset can be converted into cash without significantly affecting its value.

Question 9

A review of the accounting records discovered that wages in the amount of $795 had been incorrectly recorded by debiting supplies expense in the amount of $975. Which of the following entries will correct the ledger accounts?

Accepted Answer

The answer of A review of the accounting records discovered...

Question 10

When a journal entry contains an error and the error is detected before posting, the entry can be corrected.

Accepted Answer

Before posting, a journal entry error can be corrected directly in the journal since it has not yet been transferred to the ledger accounts.

Question 11

The most liquid asset is:

Accepted Answer

Cash is considered the most liquid asset because it is already in the form of money that can be used immediately without needing to be converted or sold.

Question 12

When a journal entry contains an error and the error is detected after posting, the entry can be corrected.

Accepted Answer

The answer of When a journal entry contains an error...

Question 13

Current assets are assets that are expected to be converted to cash, sold, or consumed during the next 12 months or within the operating cycle if less than 12 months.

Accepted Answer

The answer of Current assets are assets that are expected...

Question 14

The bookkeeper recorded purchasing $50 of office supplies by erroneously crediting cash instead of accounts payable. Which of the following journal entries will correct the ledger accounts?

Accepted Answer

The correct entry needs to debit Cash (to correct the erroneous credit) and credit Accounts Payable (to record the liability that was omitted). Option B does exactly that.

Question 15

Some liability accounts can have their balances split between the current liability and long-term liability sections of a balance sheet.

Accepted Answer

Liability accounts can be split between current and long-term sections based on their maturity. Current liabilities are due within one year, while long-term liabilities are due after one year.

Question 16

On a classified balance sheet unearned revenue is classified as a current revenue.

Accepted Answer

Unearned revenue is classified as a current liability on a classified balance sheet because it represents money received for goods or services that have yet to be delivered or performed.

Question 17

All of the following are current assets except:

Accepted Answer

Buildings are not current assets because they are not expected to be converted into cash within one year.

Question 18

The time span during which cash is used to acquire goods and services, and these goods and services are sold to customers, who in turn pay for their purchases with cash, is called the:

Accepted Answer

The operating cycle refers to the time span during which a company uses cash to acquire goods and services, sells them to customers, and collects cash from these sales.

Question 19

Given the following adjusted account balances in random order, prepare the closing entries for Sheer Fabrics on December 31, 2019. $$\begin{array} { l r } 
\text { Cash } & 35,000 \
\text { Suzie Sheer, Capital } & 85,000 \
\text { Accounts payable } & 33,000 \
\text { Service revenue } & 84,000 \
\text { Amortization expense-building } & 12,000 \
\text { Salary expense } & 29,000 \
\text { Unearned service revenue } & 24,000 \
\text { Prepaid rent } & 9,000 \
\text { Supplies expense } & 6,000 \
\text { Note payable } & 71,000 \
\text { Land } & 65,000 \
\text { Accounts receivable } & 32,000 \
\text { Accum. amortization-building } & 12,000 \
\text { Interest revenue } & 14,000 \
\text { Interest payable } & 3,000 \
\text { Suzie Sheer, Withdrawals } & 20,000 \
\text { Rent expense } & 15,000 \
\text { Building } & 95,000 \
\text { Supplies } & 4,000 \
\text { Interest expense } & 4,000
\end{array}$$

Accepted Answer

The answer of Given the following adjusted account balances in...

Question 20

Prepaid insurance would appear on a classified balance sheet as a(n):

Accepted Answer

Prepaid insurance is considered a current asset on a classified balance sheet because it represents payments made in advance for insurance coverage that will benefit the company within one year or the operating cycle, whichever is longer.

Quiz 4: Completing the Accounting Cycle