The approach which dominates current financial reporting of financial instruments [uses the historical market interest rate to compute the carrying value of notes and bonds while these obligations are outstanding] is the _____ approach.
A)amortized cost
B)un-amortized cost
C)imputed cost
D)future value
E)liquidation value

Question

Quizplus · Accepted Answer

The use of historical market interest rate to compute the carrying value of notes and bonds while these obligations are outstanding is the approach used in amortized cost accounting. This approach considers the cash flows of financial instruments and applies the effective interest rate method to calculate the interest expense and amortization of discounts or premiums. It is widely used in financial reporting for debt securities held to maturity.

The Approach Which Dominates Current Financial Reporting of Financial Instruments