University:
Grand Rapids Community College
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

35

Pages:

2
Author:

stud_ice13

Accounting for Held-to-Maturity (HTM) Debt Securities Definition and Classification Held-to-Maturity (HTM) debt securities are those a company intends and has the ability to retain until they reach maturity. Classification of HTM securities is based on the maturity date: • • Current assets: If the securities mature within one year or the operating cycle, whichever is longer. Long-term investments: If the securities have a maturity date beyond one year. Cost and Amortization The acquisition cost of a debt security may differ from its maturity value. If a longterm HTM security’s cost differs from its maturity value, the difference is amortized over the remaining life of the security. However, in simplified scenarios or assignments, it is assumed that the acquisition cost equals the maturity value, thus no amortization is necessary. Recording and Reporting 1. Acquisition and Interest Revenue: o HTM securities are initially recorded at cost at the time of purchase. o Interest revenue is recorded as it is earned based on the terms of the security. 2. Balance Sheet Reporting: o HTM securities are reported at their (amortized) cost. Unlike available-for-sale or trading securities, there is no fair value adjustment for HTM securities. Journal Entry Example for HTM Securities Transactions: 1. May 15: Purchase of a short-term debt security for $100, maturing in 120 days, with a 6% interest rate. o Journal Entry:  Debit: HTM Securities (Short-Term) $100  Credit: Cash $100 2. September 13: Receipt of principal and interest on maturity. o Calculate Interest: $100 principal × 6% annual rate × (120/360 days) = $2 o Journal Entry:  Debit: Cash $102  Credit: Interest Revenue $2  Credit: HTM Securities (Short-Term) $100 These entries reflect the basic acquisition and maturity transactions for HTM debt securities and illustrate the typical accounting treatment for interest revenue and amortization adjustments (where applicable) for HTM classifications.