Companies determine the cost of held-to-maturity securities as the present value of the future cash flows,discounted at the market rate of interest.

Question

Quizplus · Accepted Answer

This statement is true. Companies allocate held-to-maturity securities at cost and compute annual interest revenue by applying the effective-interest method. The cost of the securities consists of the purchase price adjusted for amortization of any premium or discount and any costs associated with the purchase. The present value of future cash flows is used to determine the cost of the held-to-maturity securities, and this value is discounted at the market rate of interest.

Companies Determine the Cost of Held-To-Maturity Securities as the Present