Q1SE_1. - Horngren'S Financial And Managerial Accounting

Question

S10-1 Identifying why companies invest and classifying investments

Garden Haven has excess cash of $15,000 at the end of the harvesting season. Garden Haven will need this cash in four months for normal operations.

Requirements 

1. What are some reasons why Garden Haven may choose to invest in debt or equity securities?

Step-by-Step Solution

Answer

Garden can invest in the securities because the excess cash can be utilized to generate income for at least four months.

Step 1: Definition of Dividend

The dividend is the share of profit provided to the shareholders or investors of the equity. Such dividend is decided by the board of directors of the company.

Step 2: Reasons for Investing in Debt and Equity Securities

Garden may choose to invest in debt or equity securities because the company has excess cash available that will be needed after four months. Such excess cash can generate income from the securities, such as interest and dividends.