For an investment to qualify as a cash equivalent, it must be readily convertible to a known amount of cash and which of the following is correct?
A) It must mature within 4 months.
B) Must be sufficiently close to its maturity date so that its market value is relatively insensitive to interest rate changes.
C) The investment must have a known foreign exchange rate.
D) It must be identified as a cash equivalent on the statement of earnings.

Question

Quizplus · Accepted Answer

Option A is incorrect as while cash equivalents are short-term investments that mature within 3 months, the 4-month limit is not a requirement. 
Option C is incorrect as a known foreign exchange rate is not a defining characteristic of cash equivalents. 
Option D is incorrect as it is not necessary for an investment to be identified as a cash equivalent on the statement of earnings. 
Option B is correct - cash equivalents must be close to maturity so that their market value is relatively insensitive to interest rate changes.

For an Investment to Qualify as a Cash Equivalent, It