Final answer:
Cash equivalents do not include marketable equity securities like stocks, even if there's an intent to sell them within three months, due to their fluctuations in value and higher risk, distinguishing them from cash equivalents which are low-risk and very liquid.
Step-by-step explanation:
It is false that cash equivalents would include investments in marketable equity securities as long as management intends to sell the securities in the next three months. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Typically, these would include Treasury bills, money market funds, and commercial paper.
Equity securities, like stocks, although liquid, are not considered cash equivalents because their value can fluctuate significantly in the short term, posing a greater risk compared to the assets normally categorized as cash equivalents. Therefore, owning marketable equity securities with the intent to sell them does not align with the defining characteristics of cash equivalents.
Relevant details to remember include the fact that liquidity is high in stocks, allowing them to be readily sold, but due to their high risk and potential for significant valuation changes, they do not qualify as cash equivalents. This distinction is crucial for accurate financial reporting and cash management.