Multiple Choice
Prior service cost is amortized on a:
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7. Receivables and Investments
Introduction to Investments in Securities
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In the context of investments in securities, what term best describes the cash flows that an asset or project is expected to generate over its life?
A
Residual value
B
Historical cost
C
Book value
D
Expected future cash flows
Verified step by step guidance1
Understand the context of the question: It is asking about investments in securities and the term that best describes the cash flows an asset or project is expected to generate over its life.
Review the provided options: Residual value, Historical cost, Book value, and Expected future cash flows.
Define each term: Residual value refers to the estimated value of an asset at the end of its useful life. Historical cost is the original purchase price of an asset. Book value is the value of an asset as recorded in the accounting books, typically calculated as the original cost minus accumulated depreciation. Expected future cash flows represent the projected inflows of cash that an asset or project is anticipated to generate over its life.
Compare the definitions to the context of the question: The question specifically asks about cash flows generated over the life of an asset or project, which aligns with the definition of Expected future cash flows.
Conclude that the correct term describing the cash flows an asset or project is expected to generate over its life is Expected future cash flows.
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