The Financial Accounting Standards Board issued accounting guidance to clarify a

Question

The Financial Accounting Standards Board issued accounting guidance to clarify accounting methods and procedures with respect to certain debt and all equity securities. An important part of the statement concerns the distinction between held-to-maturity, available-for-sale, and trading securities. Instructions (a) Why does a company maintain an investment portfolio of held-to-maturity, available-for-sale, and trading securities? (b) What factors should be considered in determining whether investments in securities should be classified as held-to-maturity, available-for-sale, and trading? How do these factors affect the accounting treatment for unrealized losses?

Explanation / Answer

The level of effort required to comply with ASC 320 varies from entity to entity, depending on the size

of the investment portfolio. This compliance process for most entities includes all or most of the

following steps:

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