Chapter 15, Problem 9DQ

To determine

Introduction:

Investment in Debt securities: Debt securities are financing instrument which represents the loan taken from the lender and usually these securities pay defined interest rate on the amount borrowed. The several types of debt instruments are bonds, certificate of deposits, preferred stock, corporate bonds etc. The investment in debt securities is classified under following categories:

1. Held to maturity: Held to maturity is a type of debt investment that the investor intends to hold until maturity. These securities are recorded at amortized cost.

2. Trading: Trading securities are purchased by the investor for the purpose to sell within a short-term period to each profit. These securities are recorded at their fair value and any gain or loss is recognized in the income statement for that period.

3. Available for sale: All the other securities are considered as available for sale and these securities are recorded at their fair value and any gain or loss is recognized unrealized gain or loss until the securities are actually sold.

To determine: The circumstances under which the long-term investments in debt securities are reported at cost and adjusted for the amortization of the difference between cost and the maturity value.