Held-to-Maturity Securities

D

Accounting rules specify that debt securities classified as held-to-maturity must be valued at amortized cost.

Held-to-maturity securities are a specific category of debt securities that an entity intends to hold until maturity. These securities are recorded on the balance sheet at their amortized cost. The correct answer is D. amortized cost.

Amortized cost refers to the initial cost of acquiring the security, adjusted for any amortization of premiums or discounts and reduced by any impairment losses. The key concept is that the investment is held with the intention of collecting the contractual cash flows until the security matures.

The fair value (option A) of a security represents its current market price, which may fluctuate over time. However, held-to-maturity securities are not reported at fair value on the balance sheet. Instead, fair value is generally used for other types of investments such as trading securities or available-for-sale securities.

The lower of cost or market (option B) is a valuation method used for inventory, where the cost of inventory is compared to its market value, and the lower value is used. This concept is not applicable to held-to-maturity securities.

Present value (option C) is a method of discounting future cash flows to their current value. While present value is used in the analysis of investment decisions, it does not represent the appropriate valuation method for held-to-maturity securities.

Acquisition cost (option E) refers to the initial cost incurred to acquire an investment. While acquisition cost is part of the calculation to determine the amortized cost, it does not fully capture the adjustments required for premiums or discounts and impairment losses.

In summary, held-to-maturity securities are valued at amortized cost, which is the initial cost adjusted for amortization of premiums or discounts and reduced by any impairment losses. This valuation method reflects the intention to hold the securities until their maturity date and is distinct from fair value, lower of cost or market, present value, or acquisition cost.