Question 11Q - Intermediate Accounting (Kieso)

Question

11. Should available-for-sale securities always be reported as a current asset? Explain.

Step-by-Step Solution

Answer

No, reporting available for sale securities as current assets depends upon the business entity's expectations to generate cash within the operating period.

Definition of Capital gain

A business entity benefits from the capital assets by selling them at more than their acquisition cost, known as a capital gain.

Available for Sale Securities as Current Assets

No, available-for-sale securities are not always classified as current assets. They will be classified as current assets in situations where the business entity wishes to convert such securities into cash within the operating period or one year. If the business entity does not want to generate cash within the operating period, such securities must be reported under the long-term investment.