Question

1 Which of the following would not be classified as a current liability in the balance sheet? (a) accounts payable (b) accounts receivable (c) accrued expenses (d) unerned income (e) bank overdraft 2. Which of the following items should be classed as capital expenditure? (a) (b) (c) (d) (e) software maintenance depreciation of equipment purchase of raw materials purchase of an automobile capitalisation of interest 3. A firm sells goods on credit. The effect will be to: (a) (b) (c) (d) (e) decrease inventory, decrease liabilities increase cash, increase liabilities increase cash, decrease inventory decrease inventory, increase assets decrease inventory, decrease overdraft 4. A company pays cash to a supplier for goods the firm had bought the previous month. The effect will be to (a) (b) (c) (d) (e) decrease cash, decrease accounts receivable decrease cash, decrease accounts payable decrease cash, increase current liabilities increase cash, decrease cost-of-sales decrease cash, increase cost-of-sales 5. Which of the following would not be classified as a current asset? (a) (b) (c) (d) (e) a tax overpayment security services prepayment work-in-progress precious metal owned by a commodities trader money due to suppliers

Answer 1

1. Answer: (b) accounts receivable

Accounts receivable is classified as a current asset and not a current liability while accounts payable, accrued expenses, unearned income, and bank overdraft are all classified as current liabilities.

2. Answer: (d) purchase of an automobile

The purchase of an automobile should be classed as a capital expenditure.

3. Answer: (d) decrease inventory, increase assets

When goods are sold on credit, accounts receivable is debited with corresponding credit to sales thereby increasing assets. Also, the inventory is credited with corresponding debit to the cost of goods sold thereby decreasing inventory. Thus, option (d) is correct.

4. Answer: (b) decrease cash, decrease accounts payable

When cash is paid to the supplier for goods bought previously, accounts payable is debited and cash is credited thereby decreasing the accounts payable and also decreasing the cash. Thus, option (b) is correct.

Per HOMEWORKLIB RULES, the first 4 MCQs have been answered. Please post the remaining separately. Thank you.