If a company elects to use the fair value method for available-for-sale debt investments,the interest income pattern in the income statement is identical to the interest income pattern under the held-to-maturity classification.

Question

Quizplus · Accepted Answer

Under the fair value method, interest income is recognized as the difference between the fair value of the investment at the beginning and end of the period, adjusted for any amortization of the premium or discount. Under the held-to-maturity classification, interest income is recognized as the contractual interest payments received. Since the fair value of the investment will typically fluctuate over time, the interest income pattern under the fair value method will not be identical to the interest income pattern under the held-to-maturity classification.

If a Company Elects to Use the Fair Value Method