Question 1

Long-term investments would appear in the property, plant, and equipment section of the balance sheet.

Accepted Answer

Long-term investments are typically listed in a separate section of the balance sheet under non-current assets, distinct from the property, plant, and equipment (PP&E) section which specifically lists tangible assets used in operations.

Question 2

If a company has a loss in the period, the amount of the loss will appear in the income statement credit column and the balance sheet debit column of the work sheet.

Accepted Answer

The income statement credit column shows all revenues and gains, as well as any expenses or losses incurred during the period. If the company has a loss, it will be included as an expense in the income statement credit column. The balance sheet debit column shows all assets and expenses, including any losses that have been incurred by the company. Therefore, if the company has a loss in the period, it will appear in both the income statement credit column and the balance sheet debit column of the work sheet.

Question 3

An incorrect debit to Accounts Receivable instead of the correct account Notes Receivable does NOT require a correcting entry because total assets will NOT be misstated.

Accepted Answer

If an incorrect debit is made to Accounts Receivable instead of Notes Receivable, it will result in an overstatement of Accounts Receivable and an understatement of Notes Receivable. This means that total assets will be misstated, and a correcting entry will be required to ensure that the financial statements are accurate.

Question 4

The balance of the Depreciation Expense account will appear in the income statement debit column of a work sheet.

Accepted Answer

Depreciation Expense is an expense account and therefore has a normal debit balance. Its balance will appear in the debit column of the income statement section of a work sheet.

Question 5

Another name for Balance Sheet is the Statement of Financial Position.

Accepted Answer

This is true, the Balance Sheet is also commonly referred to as the Statement of Financial Position.

Question 6

IFRS uses the alternate statement name of "Statement of Financial Position" in the written standards, whereas ASPE uses the name "Balance Sheet".

Accepted Answer

IFRS refers to the balance sheet as "Statement of Financial Position" in their written standards.

Question 7

Common Canadian practice shows current assets as the first items listed on a classified balance sheet.

Accepted Answer

In Canada, current assets are typically listed first on a classified balance sheet, followed by non-current assets.

Question 8

Cash and office supplies are both classified as current assets.

Accepted Answer

Cash and office supplies are short-term assets that are expected to be used or converted into cash within a year, therefore they are classified as current assets on a company's balance sheet.

Question 9

If total credits in the income statement columns of a work sheet exceed total debits, the company has profit.

Accepted Answer

A credit balance in the income statement columns indicates that the company has made a profit.

Question 10

The acid-test ratio is a measure of a company's long-term liquidity.

Accepted Answer

The acid-test ratio, also known as the quick ratio, is actually a measure of a company's short-term liquidity. It assesses a company's ability to meet immediate financial obligations by measuring its ability to convert quick assets (cash, accounts receivable, marketable securities) into cash to pay off current liabilities. Long-term liquidity is measured by ratios such as the debt-to-equity ratio or the interest coverage ratio.

Question 11

Drawings will appear in the balance sheet debit column of a work sheet.

Accepted Answer

Drawings are recorded as a debit in the balance sheet's capital account since they lower the owner's equity. As a result, they will appear in the debit column of a work sheet's balance sheet section.

Question 12

The current ratio is the ratio of current liabilities divided by current assets.

Accepted Answer

The current ratio is the ratio of current assets divided by current liabilities.

Question 13

Sassy Hair Products has current assets of $26,000 and current liabilities of $16,500. Its current ratio is 0.6 to 1.

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. In this case, the current ratio would be 26,000/16,500 = 1.58 to 1, not 0.6 to 1. Therefore, the statement is false.

Question 14

The difference between current assets and current liabilities is called working capital.

Accepted Answer

The difference between current assets and current liabilities is indeed called working capital.

Question 15

Abbott Manufacturing Company's current ratio is 2:1. The company has $50,000 in current liabilities; current assets must be $25,000.

Accepted Answer

If Abbott Manufacturing Company's current ratio is 2:1 and it has $50,000 in current liabilities, its current assets must be $100,000, not $25,000, because the current ratio is calculated as current assets divided by current liabilities.

Question 16

If a work sheet is used, financial statements can be prepared before adjusting entries are journalized.

Accepted Answer

The purpose of a worksheet is to facilitate the preparation of financial statements by organizing and summarizing the information from the adjusted trial balance. The worksheet includes columns for adjusting entries, which are used to update account balances before the financial statements are prepared. Therefore, financial statements can be prepared before adjusting entries are journalized using a worksheet.

Question 17

A liability is classified as a current liability if it is to be settled within one year from the balance sheet date or in the company's normal operating cycle.

Accepted Answer

This statement is true. Current liabilities are expected to be settled within one year or the normal operating cycle, whichever is longer.

Question 18

Current assets are normally listed in the balance sheet in order of permanency.

Accepted Answer

Current assets are listed in order of liquidity, not permanency. This means that the most easily accessible and convertible assets are listed first, followed by those that are less liquid.

Question 19

All Canadian public companies must follow International Financial Reporting Standards.

Accepted Answer

As of 2011, all Canadian publicly accountable enterprises are required to follow International Financial Reporting Standards (IFRS).

Question 20

For entity's reporting under International Financial Reporting Standards, "non- current assets" is typically presented on the Balance Sheet

Accepted Answer

Non-current assets, also known as long-term assets, are typically presented on the Balance Sheet under International Financial Reporting Standards. Examples of non-current assets include property, plant, and equipment, intangible assets, and long-term investments.

Quiz 4: Completion of the Accounting Cycle