Audit and Assurance Practice Exam

What statement is true regarding the common perceptions of marketable securities categories?

1. They are exclusively long-term investments

2. They do not include equity securities

3. They are not classified by duration

4. They include temporary investments in debt or equity securities

The correct answer is: They include temporary investments in debt or equity securities

The assertion that marketable securities include temporary investments in debt or equity securities is accurate because marketable securities are defined as financial instruments that are liquid and can be quickly converted into cash. This category typically encompasses both debt and equity securities that can be readily bought or sold in public markets. Marketable securities are usually considered short-term investments, usually held for a year or less, which distinguishes them from long-term investments. They are valued based on their market price and can include a wide array of financial instruments such as stocks, bonds, and other securities actively traded in the marketplace. The liquidity aspect of marketable securities is critical, as it allows investors to access cash quickly, should the need arise. Furthermore, the classification of these securities is indeed based on their liquidity and marketability rather than solely on the duration of the investment. Hence, characterizing them as temporary investments in both debt and equity securities accurately reflects common practices in financial reporting and investment strategy.