Asked by Brendan Callanan on May 01, 2024
Verified
Long-term investments in held-to-maturity debt securities are accounted for using the:
A) Fair value method with fair value adjustment to income.
B) Fair value method with fair value adjustment to equity.
C) Cost method without amortization.
D) Cost method with amortization.
E) Equity method.
Held-to-Maturity Debt Securities
Debt investments that a company has the positive intent and ability to hold until their maturity dates, typically reported at amortized cost.
Fair Value Method
An accounting approach where assets and liabilities are reported at their prices that would be received to sell an asset or paid to transfer a liability.
Cost Method
An accounting method where investments are recorded at their acquisition cost without considering market value changes unless a permanent decline in value has occurred.
- Acquire knowledge on the classification and bookkeeping practices for long-term investments.
Verified Answer
SA
SARAH ANSONMay 02, 2024
Final Answer :
D
Explanation :
Long-term investments in held-to-maturity debt securities are accounted for using the cost method with amortization, as these securities are intended to be held until maturity and thus their value is not subject to fluctuations in the market. Therefore, the cost at which the securities were initially purchased is recorded on the balance sheet and amortized over the life of the security to reflect the actual yield earned over time.
Learning Objectives
- Acquire knowledge on the classification and bookkeeping practices for long-term investments.