Final answer:
Marketable equity securities are not considered cash equivalents, even if the intent is to sell in the short term; only those with maturities of three months or less are classified as cash equivalents.
Step-by-step explanation:
Cash equivalents include short-term, highly liquid investments that are readily convertible to known amounts of cash and so close to their maturity that they present insignificant risk of changes in value due to changes in interest rates. Typically, only those with original maturities of three months or less qualify as cash equivalents.
Investments in marketable equity securities are not considered cash equivalents, even if management intends to sell them within the next three months. Instead, these are classified as short-term investments. Cash equivalents would include items like Treasury bills, money market funds, and commercial paper.
The confusion may arise due to the liquidity of marketable equity securities. While they are highly liquid and can be quickly sold, liquidity alone does not make an investment a cash equivalent. The key distinction is the maturity of the investment. Therefore, a management intention to sell equity securities in the short term does not categorize these securities as cash equivalents.