1. Why do corporations typically make short-term investments?

2. Short-term investments are categorized as either trading securities or available for sale securities. Define these two categories.

3. Trading securities and available for sale securities are required to be reported on the financial statements at their fair market value. Why is this departure from the cost principle made?

4. What is the difference between a realized gain and an unrealized gain?

5. For trading securities, the unrealized gain or loss on valuation is reported on the income statement. For available for sale securities any unrealized gain or loss on valuation is reported on the balance sheet as a component of stockholders' equity. Why the difference in reporting?