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EXERCISE 7.7 The Nature of Marketable Securities LO7-1, LO7-4 Many companies hold a significant portion...

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EXERCISE 7.7 The Nature of Marketable Securities LO7-1, LO7-4 Many companies hold a significant portion of their financial assets in the form of marketable securities. For example, Microsoft Corporation recently reported short-term investments totaling almost $122 billion, an amount equal to 76 percent of its total of cash and cash equivalents, short-term investments, and accounts receivable. In contrast, only 16.5 percent of its these assets were in the form of accounts receivable. a. Define marketable securities (also referred to as short-term | investments). What characteristics of these securities justify classifying them as financial assets? b. What is the basic advantage of Microsoft Corporation keeping financial assets in the form of marketable securities instead of cash? Is there any disadvantage? c. Explain how Microsoft Corporation values these investments in its balance sheet. d. Discuss whether the valuation of marketable securities represents a departure from (1) the cost principle and (2) the objectivity principle. e. Explain how fair value accounting benefits the users of Microsoft Corporation's financial statements

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