Cash and Cash Equivalents
The following footnote appeared in a recent financial statement of Oakwood Corporation:
The Corporation considers all investment securities with a maturity of three months or less when acquired to be cash equivalents. All cash and temporary investments are placed with high-credit-quality financial institutions, and the amount of credit exposure to any one financial institution is limited. At December 31, cash and cash equivalents include restricted funds of $36 million.
a. Are the company’s cash equivalents debt or equity securities? How do you know?
b. Explain what is meant by the statement that “the credit exposure to any one financial institution is limited.”
c. Explain what is meant by the term restricted funds used in the footnote.
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