INTERMEDIATE ACCOUNTING
10th Edition
ISBN: 9781265246853
Author: SPICELAND
Publisher: PEARSON
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Chapter 12, Problem 12.26Q
To determine
Held-to-maturity security: The debt securities which are held by the investor with an intent to hold the investment till its maturity, are referred to as held-to-maturity securities.
Other-than-temporary (OTT) impairment: When the market value of an investment declines to a value lower than its cost, it is referred to as OTT impairment.
To explain: The accounting of fall of market interest rates of the held-to-maturity investment
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When market rates of interest rise after a fixed-rate security is purchased, the value of the now below-market, fixed-interest payments declines, so the market value of the investment falls. If that drop in fair value is viewed as giving rise to an other-than-temporary impairment, how would it be reflected in the investment account for a security classified as held-to-maturity?
When market rates of interest rise after a fixed-rate security is purchased, the value of the now-below-market, fixedinterest payments declines, so the market value of the investment falls. On the other hand, if market rates of interest fall after a fixed-rate security is purchased, the fixed-interest payments become relatively attractive, and the market value of the investment rises. Assuming these price changes are not viewed as giving rise to an other-than-temporary impairment, how are they reflected in the investment account for a security classified as held-to-maturity?
When market rates of interest rise after a fixed-rate security is purchased, the value of the now-below-market, fixed-interest payments declines, so the market value of the investment falls. How would that drop in fair value be reflected in the investment account for a security classified as HTM? Would your answer change if the drop in fair value was due to worsened financial conditions at the investee?
Chapter 12 Solutions
INTERMEDIATE ACCOUNTING
Ch. 12 - All investments in debt securities are classified...Ch. 12 - When market rates of interest rise after a...Ch. 12 - Does GAAP distinguish between fair values that are...Ch. 12 - When a debt investment is acquired to be held for...Ch. 12 - Prob. 12.5QCh. 12 - What is comprehensive income? Its composition...Ch. 12 - Why are holding gains and losses treated...Ch. 12 - Prob. 12.8QCh. 12 - Prob. 12.9QCh. 12 - Prob. 12.10Q
Ch. 12 - Under IFRS No. 9, which reporting categories are...Ch. 12 - Prob. 12.12QCh. 12 - Do U.S. GAAP and IFRS differ in the amount of...Ch. 12 - Under what circumstances is the equity method used...Ch. 12 - The equity method has been referred to as a...Ch. 12 - In the application of the equity method, how...Ch. 12 - Prob. 12.17QCh. 12 - Prob. 12.18QCh. 12 - Prob. 12.19QCh. 12 - How does IFRS differ from U.S. GAAP with respect...Ch. 12 - What is the effect of a company electing the fair...Ch. 12 - Define a financial instrument. Provide three...Ch. 12 - Some financial instruments are called derivatives....Ch. 12 - (Based on Appendix 12A) Northwest Carburetor...Ch. 12 - Prob. 12.25QCh. 12 - Prob. 12.26QCh. 12 - (Based on Appendix 12B) Reporting an investment at...Ch. 12 - Prob. 12.28QCh. 12 - Prob. 12.17BECh. 12 - Prob. 12.18BECh. 12 - Prob. 12.20BECh. 12 - Prob. 12.8ECh. 12 - Prob. 12.15PCh. 12 - Prob. 12.2DMPCh. 12 - Prob. 12.4DMPCh. 12 - Continuing Cases Target Case LO12-4, LO12-6...
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