ACCT 5312 Exam 2 Questions and Answers
Comprehensive Practice Examination with Solutions |
Newest 2026-2027 Questions with 100% Accurate
Answers and Detailed Rationales
Question 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. Current assets typically represent a significant portion of total assets for
many companies. Current assets include more than just cash, marketable securities,
and receivables.
Question 2
Which of the following is the correct balance sheet presentation for current assets?
A. Cash, inventories, account receivables, 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: The correct balance sheet presentation for current assets typically lists
them in order of liquidity: cash, cash equivalents, marketable securities, accounts
receivable, inventories, prepaid expenses, and other current assets. While cash is
listed first, the question asks for the correct grouping. Option C represents a logical
progression of current assets after cash is separately listed.
,Question 3
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. The reconciliation explains the
differences between the book balance and the bank statement balance. While
GAAP requires accurate cash reporting, the principal reason is determining the
actual available cash.
Question 4
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. Deposits in transit,
outstanding checks, and bank errors are reconciled on the bank side or do not
require adjusting entries because they are timing differences or bank corrections.
Question 5
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. These investments
are typically made with cash that will be needed in the near term. Long-term
capital gains, tax reduction, and competitor acquisition are not primary motivations
for short-term investments.
Question 6
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. Cash,
accounts receivable, and inventory are all current assets.
Question 7
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: Cash balance = Bank balance ($50,000) + Petty cash ($500) - Bank
overdraft ($2,000) = $48,500. Bank overdrafts are liabilities unless they are part of
cash management arrangements. Petty cash is included in cash. The bank overdraft
reduces the cash balance.
Question 8
Which of the following is considered a cash equivalent?
A. Accounts receivable
B. Treasury bills with 90-day maturity
C. Inventory
D. Prepaid insurance
Answer: B
Rationale: Cash equivalents are short-term, highly liquid investments readily
convertible to known amounts of cash with insignificant risk of value change.
Treasury bills with 90-day maturity qualify. Accounts receivable, inventory, and
prepaid insurance are not cash equivalents.
Question 9
A company's book balance shows a cash balance of $10,000. The bank statement
shows a balance of $12,000. Outstanding checks total $3,000, and deposits in
transit total $1,000. The bank statement also shows a service charge of $50. What
is the correct cash balance?
A. $10,000
B. **$9,950**
C. $10,050
D. $11,950
Answer: B
Rationale: Correct cash balance = Book balance ($10,000) - Bank service charge
($50) = $9,950. The outstanding checks and deposits in transit are already included
in the book balance and are timing differences, not adjustments to the book
balance. The service charge requires an adjustment to the book balance.
Comprehensive Practice Examination with Solutions |
Newest 2026-2027 Questions with 100% Accurate
Answers and Detailed Rationales
Question 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. Current assets typically represent a significant portion of total assets for
many companies. Current assets include more than just cash, marketable securities,
and receivables.
Question 2
Which of the following is the correct balance sheet presentation for current assets?
A. Cash, inventories, account receivables, 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: The correct balance sheet presentation for current assets typically lists
them in order of liquidity: cash, cash equivalents, marketable securities, accounts
receivable, inventories, prepaid expenses, and other current assets. While cash is
listed first, the question asks for the correct grouping. Option C represents a logical
progression of current assets after cash is separately listed.
,Question 3
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. The reconciliation explains the
differences between the book balance and the bank statement balance. While
GAAP requires accurate cash reporting, the principal reason is determining the
actual available cash.
Question 4
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. Deposits in transit,
outstanding checks, and bank errors are reconciled on the bank side or do not
require adjusting entries because they are timing differences or bank corrections.
Question 5
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. These investments
are typically made with cash that will be needed in the near term. Long-term
capital gains, tax reduction, and competitor acquisition are not primary motivations
for short-term investments.
Question 6
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. Cash,
accounts receivable, and inventory are all current assets.
Question 7
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: Cash balance = Bank balance ($50,000) + Petty cash ($500) - Bank
overdraft ($2,000) = $48,500. Bank overdrafts are liabilities unless they are part of
cash management arrangements. Petty cash is included in cash. The bank overdraft
reduces the cash balance.
Question 8
Which of the following is considered a cash equivalent?
A. Accounts receivable
B. Treasury bills with 90-day maturity
C. Inventory
D. Prepaid insurance
Answer: B
Rationale: Cash equivalents are short-term, highly liquid investments readily
convertible to known amounts of cash with insignificant risk of value change.
Treasury bills with 90-day maturity qualify. Accounts receivable, inventory, and
prepaid insurance are not cash equivalents.
Question 9
A company's book balance shows a cash balance of $10,000. The bank statement
shows a balance of $12,000. Outstanding checks total $3,000, and deposits in
transit total $1,000. The bank statement also shows a service charge of $50. What
is the correct cash balance?
A. $10,000
B. **$9,950**
C. $10,050
D. $11,950
Answer: B
Rationale: Correct cash balance = Book balance ($10,000) - Bank service charge
($50) = $9,950. The outstanding checks and deposits in transit are already included
in the book balance and are timing differences, not adjustments to the book
balance. The service charge requires an adjustment to the book balance.
