When the fair value of an investment in debt securities exceeds its amortized cost， how should each of the following debt securities be reported at the end of the year？
Debt securities classified as
Held-to-maturity Available-for-sale
a. Fair value Fair value
b. Amortized cost Amortized cost
c. Fair value Amortized cost
d. Amortized cost Fair value
Explanation
Choice “d” is correct. Debt securities （bonds） classified as held-to-maturity are reported at amortized cost （that is， cost adjusted for amortization of premium or discount； approaches face value）。 Debt securities classified as available-for-sale are reported at fair value.
Choice “b” is incorrect. While amortized cost is the appropriate treatment for debt securities classified as held-to-maturity， this is not the correct treatment for securities classified as available-for-sale.
Choice “a” is incorrect. Fair value is not the appropriate treatment for debt securities classified as held-to-maturity.
Choice “c” is incorrect. Fair value is not the appropriate treatment for debt securities classified as held-to-maturity. Nor is amortized cost the appropriate treatment for debt securities classified as available-for-sale.
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