Your client is planning to invest some of its excess cash in 5-year revenue bond

Question

Your client is planning to invest some of its excess cash in 5-year revenue bonds issued by the county. To avoid volatility in their financial statements due to fair value adjustments, your client is considering whether the bond investment could be classified as held-to-maturity. The client is pretty sure it will hold the bonds for 5 years. How close to maturity could the client sell an investment and still classify it as held-to-maturity?
What disclosures would have to be made for any sale or transfer from securities classified as held-to-maturity?

Explanation / Answer

Question 1: How close to maturity can the client sell an investment and still classify it as held-to-maturity? Answer 1: The client must have the ability and intention to hold the security until it matures. The client must hold it until maturity in order to classify the investment as held-to-maturity. Therefore in order to classify this security as held-to-maturity it must be held until the bond matures. Question 2: What disclosures would have to be made for any sale or transfer from securities classified as held-to-maturity? Answer 2: A disclosure would have to be made regarding how the interest, and gains and losses are accounted for in the financial statements. This disclosure would state the present market value is not shown on the balance sheet for the held-to-maturity security and interest is accounted for through the income statement as revenue, while gains and losses are accumulated in comprehensive income until it is realized.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.