Question

The accrual of interest on short-term marketable securities results in:

a)an increase in current assets and a decrease in net income.
b)an increase in current liabilities and an increase in net income.
c)an increase in noncurrent assets and an increase in liabilities.
d)an increase in current assets and an increase in net income.

Answer 1

The accrual of interest on short-term marketable securities results in an increase in current assets and a decrease in net income.

Step-by-step explanation:

The accrual of interest on short-term marketable securities results in: an increase in current assets and a decrease in net income.

When interest is accrued on short-term marketable securities, it increases the value of current assets on the balance sheet. However, since interest is an expense, it decreases the net income.

For example, if a company holds a short-term marketable security that pays interest, the interest income will be recorded as revenue on the income statement, which will increase the net income. At the same time, the interest earned will increase the value of current assets on the balance sheet.