Audit and Assurance Practice Exam

Which statement accurately describes the categories of marketable securities?

1. Only includes bonds and shares

2. Excludes cash management securities

3. Includes temporary investments and available-for-sale securities

4. Consists only of long-term investments

The correct answer is: Includes temporary investments and available-for-sale securities

The statement that accurately describes the categories of marketable securities is the one that includes temporary investments and available-for-sale securities. Marketable securities are financial instruments that can be quickly converted to cash at a reasonable price. These often include stocks, bonds, and other securities that are either held for trading purposes or available for sale. Temporary investments refer to short-term investments that a company plans to convert into cash within one year, which are commonly classified as current assets. Available-for-sale securities are also included in this category, as they are not intended to be sold in the short term but can be readily liquidated if necessary. These categories highlight the liquidity and potential for quick conversion present in marketable securities, reinforcing why this answer is the most accurate. The categorization of marketable securities is crucial for understanding how a company manages its investments and cash flow, making this classification significant in the context of audit and financial analysis.