ACCT 5312 Exam 2 — 100 Practice Questions
with Answers
Section 1: Current Assets & Cash (Q1–20)
1. The current assets of most companies are usually made up of:
A) Assets that are currently used in the operations of the company
B) Cash and assets expected to be converted to cash within a year
C) A very small proportion (less than 10%) of the total assets of the entity
D) Cash, marketable securities, and accounts and notes receivable only
Answer: B
Rationale: Current assets include cash and other assets expected to be converted to cash,
sold, or consumed within one year or the operating cycle, whichever is longer .
2. Which of the following would NOT be classified as a current asset?
A) Cash
B) Accounts receivable
C) Land held for future expansion
D) Inventory
Answer: C
Rationale: Land held for future expansion is a long-term asset, not a current asset, because
it will not be converted to cash or consumed within one year .
3. A company has cash in the bank of $50,000, petty cash of $500, and a bank overdraft of
$2,000. What is the correct cash balance to report on the balance sheet?
A) $50,000
B) $50,500
C) $48,500
D) $48,000
Answer: C
Rationale: $50,000 + $500 − $2,000 = $48,500 .
4. Which of the following is the correct balance sheet presentation for current assets?
A) Cash, inventories, accounts receivable, prepaid expenses
B) Cash equivalents, cash, other current assets, accounts receivable
,C) Accounts receivable, inventories, prepaid expenses, other current assets
D) Marketable securities, cash, notes receivable, prepaid expenses
Answer: C
Rationale: Current assets are typically listed in order of liquidity: cash, cash equivalents,
marketable securities, accounts receivable, inventories, prepaid expenses, and other current
assets .
5. The principal reason for reconciling the cash balance per books with the balance shown
on the bank statement is to:
A) Determine the amount of cash in the account actually available to the entity
B) Satisfy generally accepted accounting principles
C) Verify the amount of petty cash on hand
D) Determine whether or not the entity has issued an NSF check
Answer: A
Rationale: The primary purpose of a bank reconciliation is to determine the correct cash
balance available to the entity .
6. For which of the following reconciling items would an adjusting entry be necessary on
the company's books?
A) A deposit in transit
B) An error by the bank
C) Outstanding checks
D) A bank service charge
Answer: D
Rationale: Bank service charges have been recorded by the bank but not yet by the
company, requiring an adjusting entry on the company's books .
7. When a manufacturer invests in short-term marketable securities, the primary
motivation is typically to:
A) Generate long-term capital gains
B) Earn a return on temporarily idle cash
C) Reduce income tax liability
D) Acquire competitor's stock
Answer: B
Rationale: Companies invest in short-term marketable securities primarily to earn a return
on temporarily idle cash while maintaining liquidity .
, 8. A cash equivalent is a short-term investment readily convertible into cash with minimal
risk of price change due to:
A) Interest rate movements
B) Market volatility
C) Credit risk
D) Inflation
Answer: A
Rationale: Cash equivalents are short-term investments readily convertible into cash with
minimal risk of price change due to interest rate movements .
9. In a bank reconciliation, deposits in transit are:
A) Subtracted from the bank balance
B) Added to the bank balance
C) Added to the book balance
D) Subtracted from the book balance
Answer: B
Rationale: Deposits in transit are added to the bank balance in a bank reconciliation .
10. In a bank reconciliation, outstanding checks are:
A) Added to the bank balance
B) Subtracted from the bank balance
C) Added to the book balance
D) Subtracted from the book balance
Answer: B
Rationale: Outstanding checks are subtracted from the bank balance in a bank reconciliation
.
11. The internal control process is designed to provide reasonable assurance that each of
the following objectives are achieved, EXCEPT:
A) The organization's compliance with applicable laws and regulations
B) The effectiveness and efficiency of the operations of the organization
C) The organization's effort in minimizing prevailing inflation rate
D) The reliability of the organization's financial reporting
Answer: C
Rationale: Internal control objectives include compliance with laws, operational
effectiveness and efficiency, and reliable financial reporting—not minimizing inflation .
with Answers
Section 1: Current Assets & Cash (Q1–20)
1. The current assets of most companies are usually made up of:
A) Assets that are currently used in the operations of the company
B) Cash and assets expected to be converted to cash within a year
C) A very small proportion (less than 10%) of the total assets of the entity
D) Cash, marketable securities, and accounts and notes receivable only
Answer: B
Rationale: Current assets include cash and other assets expected to be converted to cash,
sold, or consumed within one year or the operating cycle, whichever is longer .
2. Which of the following would NOT be classified as a current asset?
A) Cash
B) Accounts receivable
C) Land held for future expansion
D) Inventory
Answer: C
Rationale: Land held for future expansion is a long-term asset, not a current asset, because
it will not be converted to cash or consumed within one year .
3. A company has cash in the bank of $50,000, petty cash of $500, and a bank overdraft of
$2,000. What is the correct cash balance to report on the balance sheet?
A) $50,000
B) $50,500
C) $48,500
D) $48,000
Answer: C
Rationale: $50,000 + $500 − $2,000 = $48,500 .
4. Which of the following is the correct balance sheet presentation for current assets?
A) Cash, inventories, accounts receivable, prepaid expenses
B) Cash equivalents, cash, other current assets, accounts receivable
,C) Accounts receivable, inventories, prepaid expenses, other current assets
D) Marketable securities, cash, notes receivable, prepaid expenses
Answer: C
Rationale: Current assets are typically listed in order of liquidity: cash, cash equivalents,
marketable securities, accounts receivable, inventories, prepaid expenses, and other current
assets .
5. The principal reason for reconciling the cash balance per books with the balance shown
on the bank statement is to:
A) Determine the amount of cash in the account actually available to the entity
B) Satisfy generally accepted accounting principles
C) Verify the amount of petty cash on hand
D) Determine whether or not the entity has issued an NSF check
Answer: A
Rationale: The primary purpose of a bank reconciliation is to determine the correct cash
balance available to the entity .
6. For which of the following reconciling items would an adjusting entry be necessary on
the company's books?
A) A deposit in transit
B) An error by the bank
C) Outstanding checks
D) A bank service charge
Answer: D
Rationale: Bank service charges have been recorded by the bank but not yet by the
company, requiring an adjusting entry on the company's books .
7. When a manufacturer invests in short-term marketable securities, the primary
motivation is typically to:
A) Generate long-term capital gains
B) Earn a return on temporarily idle cash
C) Reduce income tax liability
D) Acquire competitor's stock
Answer: B
Rationale: Companies invest in short-term marketable securities primarily to earn a return
on temporarily idle cash while maintaining liquidity .
, 8. A cash equivalent is a short-term investment readily convertible into cash with minimal
risk of price change due to:
A) Interest rate movements
B) Market volatility
C) Credit risk
D) Inflation
Answer: A
Rationale: Cash equivalents are short-term investments readily convertible into cash with
minimal risk of price change due to interest rate movements .
9. In a bank reconciliation, deposits in transit are:
A) Subtracted from the bank balance
B) Added to the bank balance
C) Added to the book balance
D) Subtracted from the book balance
Answer: B
Rationale: Deposits in transit are added to the bank balance in a bank reconciliation .
10. In a bank reconciliation, outstanding checks are:
A) Added to the bank balance
B) Subtracted from the bank balance
C) Added to the book balance
D) Subtracted from the book balance
Answer: B
Rationale: Outstanding checks are subtracted from the bank balance in a bank reconciliation
.
11. The internal control process is designed to provide reasonable assurance that each of
the following objectives are achieved, EXCEPT:
A) The organization's compliance with applicable laws and regulations
B) The effectiveness and efficiency of the operations of the organization
C) The organization's effort in minimizing prevailing inflation rate
D) The reliability of the organization's financial reporting
Answer: C
Rationale: Internal control objectives include compliance with laws, operational
effectiveness and efficiency, and reliable financial reporting—not minimizing inflation .
