Chapter 16, Problem 1Q

To determine

Describe the term capital investment and state the manner in which the capital investment differs from the stocks investments and bonds investments.

Explanation of Solution

Capital investments:

The purchase of long-term operational asset is referred to as capital investments.

State the manner in which the capital investment differs from the stocks investments and bonds investments.

• The purchase of long-term operational asset is referred to as capital investments. This capital investment differs from the stocks investments and bonds investments. Because the stock and bond investments can be sold in the stock exchange market with definable market price based on supply and demand, whereas the capital investments can only be utilized by using the long-term operational asset purchased.
• The stocks and bonds investments are the intangible legal agreements of ownership made in another company or the loans provided to another company and thus it is not treated as an operational asset.
• Usually the capital investments are tangible assets that can be used in production and other operation but are not intended for resale.  The capital investment that is made in a company cannot be easily sold or exchanged.