Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Introduction to Investments in Securities

Financial Accounting

7. Receivables and Investments

Introduction to Investments in Securities

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Multiple Choice

Which of the following is a primary benefit of investing in marketable securities for a company?

They eliminate all investment risk for the company.

They guarantee a fixed rate of return regardless of market conditions.

They are not subject to any accounting or reporting requirements.

They provide liquidity while earning a return.

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Verified step by step guidance

Understand the concept of marketable securities: Marketable securities are short-term investments that can be quickly converted into cash, typically within a year. They are highly liquid and often include assets like Treasury bills, commercial paper, and money market funds.

Evaluate the incorrect options: The first option, 'They eliminate all investment risk for the company,' is incorrect because all investments carry some level of risk, even marketable securities. The second option, 'They guarantee a fixed rate of return regardless of market conditions,' is also incorrect because returns on marketable securities can vary based on market conditions. The third option, 'They are not subject to any accounting or reporting requirements,' is incorrect because marketable securities must be accounted for and reported in financial statements.

Focus on the correct benefit: The primary benefit of investing in marketable securities is their liquidity. Liquidity refers to the ease with which an asset can be converted into cash without significantly affecting its value.

Understand the additional advantage: While providing liquidity, marketable securities also earn a return, which is typically lower than long-term investments but still beneficial for companies looking to manage short-term cash needs effectively.

Conclude the reasoning: The correct answer is 'They provide liquidity while earning a return,' as this aligns with the purpose and characteristics of marketable securities in financial accounting.