Multiple Choice
Which of the following is considered an investing activity on the statement of cash flows?
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7. Receivables and Investments
Introduction to Investments in Securities
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According to the context of investments in securities, how is a 'security' best defined?
A
A physical product manufactured by a company for sale to customers.
B
A financial instrument that represents ownership in a corporation (stock), a creditor relationship with a governmental body or corporation (bond), or rights to ownership as represented by an option.
C
A tangible asset such as inventory or equipment held for sale in the ordinary course of business.
D
A service provided by a financial institution to its clients.
Verified step by step guidance1
Step 1: Begin by understanding the term 'security' in the context of investments. A security is a financial instrument, not a physical product or tangible asset.
Step 2: Recognize that securities can represent ownership in a corporation, such as stocks, or a creditor relationship, such as bonds. They may also include rights to ownership, such as options.
Step 3: Eliminate incorrect definitions, such as 'a physical product manufactured by a company,' 'a tangible asset,' or 'a service provided by a financial institution,' as these do not align with the financial accounting definition of securities.
Step 4: Focus on the correct definition: A security is a financial instrument that represents ownership in a corporation (stock), a creditor relationship with a governmental body or corporation (bond), or rights to ownership as represented by an option.
Step 5: Apply this understanding to classify and analyze securities in financial accounting contexts, ensuring clarity in distinguishing them from other types of assets or services.
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