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Financial Accounting Standards: Investment Portfolios

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The Financial Accounting Standards Board issued its Statement No. 115 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.

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?

c. How do these factors affect the accounting treatment for unrealized losses?

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Solution Summary

The distinction between the statuses of held-to-maturity, available-for-sale, and trading securities are made.

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a. A company maintains an investment portfolio of held-to-maturity, available-for-sale, and trading securities because of the different characteristics of the different investment asset components of the portfolio. For example, assets in the held-to-maturity category are, as the ...

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