Question

Classify each of the investments in assets as either permanent or​ temporary:

a. A seasonal increase in a card shop's inventory of Valentine cards.
b. The acquisition of a new forklift truck that is expected to have a useful life of five years.
c. An increase in accounts receivable resulting from an expansion in the film s customer base.

Answer 1

A seasonal inventory increase for Valentine cards is a temporary investment, a forklift with a five-year life span is a permanent investment, and an increase in accounts receivable from customer base expansion could also be considered a permanent investment. These classifications aid in aligning with long-term investment strategies.

Step-by-step explanation:

When classifying investments in assets as either permanent or temporary, it's important to understand the intended use and life span of the asset. Permanent investments are typically long-term assets that a firm expects to use over an extended period, whereas temporary investments are usually associated with short-term needs or seasonal variations in business activities.

• A seasonal increase in a card shop's inventory of Valentine cards is classified as a temporary investment. This is because the inventory boost is intended to meet the short-term demand around Valentine's Day and is not expected to be a long-term asset.
• The acquisition of a new forklift truck that is expected to have a useful life of five years would be a permanent investment. Despite the term 'permanent' being relative, in this context, it implies that the asset will provide value over a number of years rather than just a single season or short period.
• An increase in accounts receivable resulting from an expansion in the firm's customer base could represent a permanent investment, especially if the expansion is a strategic decision designed to provide long-term growth and the receivables are consistent or result in regular business.

These classifications help firms in managing their assets effectively and aligning them with broader investment strategies and financial assets management goals.

Answer 2

1. A is temporary

2. B is permanent

3. C is temporary

Step-by-step explanation:

1. A is temporary because these Valentine's day card are sold seasonally. That is at a particular time of the year. It's inventory is not for a permanent basis or for a long period of time.

2. Acquiring a new forklift is a permanent inventory because the equipment will stay in the company for a long period of time, for as long as it continues to serve the purpose for which it was acquired. This makes it a life asset.

3. The Increase in account receivable do due to expansion in customer base is for a short term due to goods sold on credit therefore they are temporary.