Which of the following items is treated as a cash equivalent?
A)Commercial paper with a six-month maturity when purchased and four months until maturity at the balance sheet date
B)Investment in corporate stocks that management intends to sell within three months after the balance sheet date
C)Money market funds that can be obtained overnight from a bank or brokerage firm
D)Investments in corporate bonds that have five years until maturity when they are purchased

Question

Quizplus · Accepted Answer

Money market funds that can be obtained overnight from a bank or brokerage firm are considered as cash equivalents because they are highly liquid and can be easily converted into cash. Commercial paper with a six-month maturity when purchased and four months until maturity at the balance sheet date may be considered a cash equivalent if it is highly liquid and can be easily converted into cash. Investment in corporate stocks that management intends to sell within three months after the balance sheet date and investments in corporate bonds that have five years until maturity when they are purchased are not considered as cash equivalents.

Which of the Following Items Is Treated as a Cash