Question 1

For a partnership, the equity section is called Shareholders Equity.

Accepted Answer

Shareholders Equity is the equity section for a corporation. For a partnership, the equity section is called Partners’ Capital or Owners' Equity.

Question 2

Current liabilities include accounts receivable, unearned revenues, and taxes owed.

Accepted Answer

Accounts receivable are actually part of current assets and not current liabilities. Unearned revenues and taxes owed are correct examples of current liabilities.

Question 3

Current liabilities are listed in the order of liquidity.

Accepted Answer

Current liabilities are typically listed in the order of their due dates, not liquidity. Liquidity order is more commonly associated with how assets are listed on the balance sheet.

Question 4

Harley Ravidson's current ratio is.9 to 1. The industry average current ratio is 1.2. Harley Davidson does not have a problem in covering its current liabilities because of its strong sales and position in its industry.

Accepted Answer

A current ratio of .9 to 1 indicates that Harley Davidson may have difficulty covering its current liabilities, especially compared to the industry average of 1.2.

Question 5

A classified balance sheet organizes assets and liabilities into important subgroups.

Accepted Answer

A classified balance sheet groups assets and liabilities into subcategories such as current and non-current. This provides more detailed information about the company's financial position.

Question 6

The current ratio is used to evaluate the ability of a business to meet its short-term obligations.

Accepted Answer

The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. It is calculated by dividing current assets by current liabilities. A higher current ratio indicates a company has a better ability to meet its short-term obligations.

Question 7

Assets are classified into current assets, investments, property, plant and equipment, and intangible assets.

Accepted Answer

This is true as per the standard classification of assets in financial accounting.

Question 8

The current ratio is calculated by dividing current liabilities by current assets.

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities.

Question 9

Harley Ravidson's current assets are $400 million and its current liabilities are $250 million. Its current ratio is.63 to 1.

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. Therefore, current ratio = $400 million/$250 million = 1.6 to 1. The given ratio of .63 to 1 is incorrect, making option B the correct answer.

Question 10

Reversing entries are prepared to adjust accrued assets and liabilities that were created by adjusting entries at the end of the previous reporting period.

Accepted Answer

Reversing entries are prepared to undo the effect of adjusting entries made at the end of the previous reporting period. This ensures that the accounts reflect the proper balances for the current period and prevents double-counting of amounts carried over from the previous period.

Question 11

Property, plant and equipment and intangible assets are non-current assets used to produce or sell products and services.

Accepted Answer

This is a true statement. Property, plant and equipment and intangible assets are non-current assets that are used in the production or sale of goods and services.

Question 12

Current assets and current liabilities are expected to be used up or come due within one year or the company's operating cycle.

Accepted Answer

Current assets are assets that are expected to be converted to cash or used up within one year, while current liabilities are obligations that are expected to be paid within one year or the company's operating cycle, whichever is longer.

Question 13

The accounting cycle refers to the steps in preparing the work sheet for users.

Accepted Answer

The accounting cycle refers to a series of steps in the accounting process, including recording transactions, posting to ledgers, preparing financial statements, and closing the books at the end of the accounting period. The work sheet is a tool used during the accounting cycle to organize and summarize financial information, but it is not the entire cycle itself.

Question 14

In order, the last four steps in the accounting cycle include preparing the adjusted trial balance, preparing financial statements, preparing adjusting entries and preparing closing entries.

Accepted Answer

The correct order for the last four steps in the accounting cycle is preparing adjusting entries, preparing the adjusted trial balance, preparing financial statements, and preparing closing entries.

Question 15

Reversing entries are optional.

Accepted Answer

Reversing entries are not mandatory, they are an optional accounting procedure taken at the beginning of a new accounting period to nullify the effect of previous period's adjusting entries.

Question 16

Sharp has current assets of $15,000 and current liabilities of $9,500. Its current ratio is 1.6 to 1.

Accepted Answer

Current ratio is calculated by dividing current assets by current liabilities. In this case, $15,000/$9,500 is equal to 1.6, which means Sharp's current ratio is 1.6 to 1, as stated in the question.

Question 17

The first five steps in the accounting cycle include analyzing transactions, journalizing, posting, preparing an unadjusted trial balance, and recording adjusting entries.

Accepted Answer

These are the correct first five steps in the accounting cycle.

Question 18

Long-term investments can include land not currently being used in operations.

Accepted Answer

Long-term investments can include land not currently being used in operations, as it has the potential to generate future income through appreciation in value or leasing to others.

Question 19

An unclassified balance sheet provides more information to users than a classified balance sheet.

Accepted Answer

This statement is false. A classified balance sheet provides more detailed and organized information, as it separates assets, liabilities, and equity into specific categories. An unclassified balance sheet simply lists these items without any further breakdown.

Question 20

Current liabilities are cash and other resources that are expected to be sold, collected, or used within the longer of one year or the company's operating cycle.

Accepted Answer

Current liabilities are obligations that a company expects to pay within the next year or within its normal operating cycle, whichever is longer, not resources expected to be sold or collected.

Quiz 4: Completing the Accounting Cycle and Classifying Accounts