Final answer:
The false statement among the options provided is "Investments in stock are reported as a financing activity on the statement of cash flows." Purchasing stock is typically classified as an investing activity, not a financing one.
Step-by-step explanation:
The student's question is focused on financial accounting, specifically the categorization and reporting of different types of asset investments on the balance sheet and statement of cash flows. There is a statement that needs to be identified as false from the options given. Let's clarify each statement:
- Cash equivalents are indeed included in cash on the balance sheet and on the statement of cash flows.
- Investments in cash equivalents and investments in stock do not exactly have the same economic effect; the liquidity and risk aspects can differ.
- An investment is considered a cash equivalent if it is readily convertible into a known amount of cash and has an original maturity of three months or less when purchased.
- Investments in stock are not necessarily reported as a financing activity on the statement of cash flows. Buying stock is an investing activity, while transactions that involve issuing or reacquiring a company's own shares are financing activities.
Therefore, the false statement is "Investments in stock are reported as a financing activity on the statement of cash flows." Instead, they are generally reported as investing activities unless they pertain to the company's own equity instruments.