Ensure no pieces of loose paper are on the edges of the sheet rock. Gently pull loose pieces of paper away from the sheet rock -- so you can cut them off, by cutting along the area where the paper connects to the sheet rock.
Mix a batch of sandable setting compound. Combine the powdered mix with water and stir it until smooth. Scoop some setting compound up on a 3-inch putty knife. Holding the putty knife at a 45-degree angle from the wall, push the setting compound into the gap, filling it entirely. Drag the putty knife across the gap at a diagonal angle to smooth the setting compound. Allow it to dry for the specified time, usually 20 to 90 minutes.
When the setting compound is semi-hard, like a bar of soap, scrape any lumps or bumps away with the edge of the putty knife. Sand over the setting compound with 120-grit sandpaper to smooth it further.
Apply strips of fiberglass-mesh tape over the setting compound, smoothing the tape with your fingers. Cover all seams and gaps between the sheet-rock panels with the fiberglass-mesh tape.
Stir the bucket of premixed lightweight drywall compound thoroughly until smooth and lump free. If necessary, thin it slightly with water to ensure the consistency is perfectly smooth.
Apply a thin layer of drywall compound over the fiberglass-mesh tape, removing the excess as you work along the strip of tape. Apply two more thin layers to completely cover the fiberglass-mesh tape. Each layer should extend slightly on either side of the tape to provide a smooth transition between the tape and the sheet rock.
Sand the drywall compound lightly with 120-grit sandpaper to completely smooth it. The sheet rock can now be covered with the wall covering of your choice, such as wallpaper, paint or tile.