Question

What is the effect on a company's cash flows and reported profit from accounting for an investment as a trading security as compared to accounting for it as an available-for-sale security?

Options:
Effect on Total Cash Flows Effect on Net Income
a. Little, if any,effec Little, if any, effect
b. Significant effect Significant effect
c. Little, if any,effect Significant effect
d. Significant effect Little, if any, effect

Answer 1

Answer:C. Little, if any,effect significant effect

Explanation:Trading security are debts and equities which a company is planning to sale for profit to be sold in the near future while as an available for sale security are debts and equities sold for profit and are both reported as a fair value.

Both record are almost same as they both appear as an investment which will still retain its value and yeild almost same profit as expected,they are sold at the predetermined market value.