4.05- Held to Maturity and Fair Value Accounting Flashcards
What is a Held to Maturity Bond?
Bonds that the company has both the intent and ability to hold until maturity
How is an HTM security recorded?
Inititally at cost with the difference between the cost and maturity value being amortized over the life of the security using the effective rate method
Are HTM securities always carried at amortized cost?
Yes
How do you record the purchase and sales of HTMs?
go under investing activities on the statement of cash flows
What are some characteristics of HTMs?
- non-current
- Bonds only
- record at cost
- carry at amortized cost
- no unrealized gains/losses
What is the FV accounting option?
it allows an entity to value various eligible items at FV at certain dates, referred to as election dates
What are some eligible items that can be accounted for by FV?
- most recognized financial instruments
- written loan commitments
- rights and obligations under insurance contracts or warranties when certain requirements are met
How do you define a financial instrument?
can be cash, it represents a potential financial liability for one part or a potential financial asset for the other party
What do election dates include?
- date when entity enters into eligible firm commitment
- when item originally reported at FV but now does not qualify for it
Under the equity method how would you report the FV option?
on each balance sheet, increases or decreases recognized as unrealized gains/loss on the income statement and div received will be recognized as income
How would you report AVS securities with the FV option?
report the FV on each balance sheet, unrealized gains and losses reported as component of net income
How would you report Trading securities with the FV option?
not affected
How would you report Held to Maturity securities with the FV option?
-accounted for by amortized cost, recognizing interest income under the effective interest method
What disclosures are needed when the FV option is elected?
- management’s decision for electing FV
- any reasons for partial election
- differences between FV and principal amounts
- any disclosures that would have been accounted for under the equity method had that been elected
What disclosures are required during the period when an income statement is presented?
- amounts of gains/losses as a result of changes in FVs
- where interest and div are reported and how measured
- for receivables held as assets, the gains/losses resulting from changes in credit risk and how measured
