When bonds are intended to be held to maturity,they are accounted for at
A)fair value
B)cost
C)fair value adjusted for the amortization of their discount or premium
D)cost adjusted for the amortization of their discount or premium

Question

Quizplus · Accepted Answer

When bonds are intended to be held to maturity, they are accounted for at cost adjusted for the amortization of their discount or premium. This method is known as the amortized cost method, which allows the bond issuer to spread the bond discount or premium over the life of the bond, resulting in a constant interest expense. The fair value of the bond may fluctuate during the life of the bond, but when the bond is held to maturity, the investor will receive the full face value of the bond regardless of its fair value. Therefore, fair value accounting is not appropriate for bonds held to maturity.

When Bonds Are Intended to Be Held to Maturity,they Are