Question
A controller preparing the year-end balance sheet finds a $50,000 certificate of deposit the company bought on November 1 with a 90-day term maturing January 30. How should this CD be classified in cash and cash equivalents?
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It is included in cash and cash equivalents, because the classification test looks at the ORIGINAL maturity measured from the date of purchase, not the time remaining at the balance sheet date. A 90-day CD stays a cash equivalent for its entire life, even as it nears maturity. If the same CD had instead been issued with a five-month original term, it would be reported as a short-term investment the whole time, even with only weeks left until maturity at year-end -- the acquisition-date test, not the remaining-term test, controls.
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