Chapter C, Problem 1QS

To determine

Short Term Investment:

Short term investment is the investment for short period generally for one year. The company invests in short term investment to fulfill the financial needs of the company. Short term investment shows under the current asset head of the balance sheet.

Long Term Investment:

Long term investment is the investment for long period generally for more than one year. The long term investment helps in the purchase of fixed assets, expansion, or for growth of the company. It shows under assets head of the balance sheet.

To identify: The given statement is true or not.

Explanation of Solution

a.

This is a not true statement

The cash available for the current operations are not the long term investment of the company. As it is the short term investment made by the company to fulfill the daily needs.

Thus, cash available for the current operations is not long term investment.

b.

This is a true statement

The funds marked for special purpose for example the bond sinking funds are considered as the long term investment of the company.

Thus, funds listed for special purpose like bond sinking funds are long term investment of the company.

c.

This is a not true statement

The trading security is not the long term investment of the company. As the trading security is for the short period and that is the reason it not include in long term investment.

Thus, trading security is not the long term investment.

d.

This is a true statement

The debt security held to maturity is the part of long term investment. The company use this type of investment to take the advantage of debt security and company hold the investment till the majority date.

Thus, debt security held to maturity is a long term investment.

e.

This is a not true statement

The long term investment is not easily sold and hence they are not marketable. The easily sold is the feature of short term investment not with long term. The long term investment includes the high amount of funds so they are not easily sold.

Thus, the long term investment is not easily sold and is not marketable.

f.

This is a true statement

The long term investment includes the debt and equity security available for sale. The investment in equity of the company is a type of long term investment as the money receives back after a long period of time.

Thus, the debt and equity security is a long term investment.

g.

This is a true statement

The long term investment includes the bonds and stocks not used as a source of cash. If the investment use for the requirement of cash in a short period it is short term investment but in this case the bond and stock are not use to fulfill the need of cash so it is long term investment.

Thus, the bonds and stocks not used as a source of cash are long term investment.