Victoria Company is planning to start the construction of a new manufacturing facility in 2016, two years from now.In 2011 Victoria put aside $250,000 in surplus cash for this project by purchasing a government bond that matures in 2016.They expect to be able to purchase more bonds in 2015.For accounting purposes how should Victoria Company's investment in the government bonds be classified?

Question

Quizplus · Accepted Answer

The investment in the government bond should be classified as amortized cost, as Victoria Company has the intent and ability to hold the investment to maturity and there are no plans to sell the investment in the near term. The bond will be held until 2016, when it will mature and the Company will receive the principal and interest payments. Since the bond is held to maturity, fluctuations in the fair value of the bond will not affect the Company's financial statements.

Victoria Company Is Planning to Start the Construction of a New