Section 2: 30–40%2E2
Financial Assets at Amortized Cost
Exam insight
HTM seems easy until the AICPA hands you a discount bond and asks for its year 3 carrying value. You use the effective interest method, and amortizing a discount pushes the carrying value up each year. The trap: candidates forget the carrying value moves every period, up for discount bonds, down for premium bonds. Know the direction and the formula, or you'll compute the wrong number.
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What AICPA wants you to know
- 1Apply the intent-and-ability test for HTM classification
- 2Amortize bond premium/discount using the effective interest method
- 3Understand the 'tainting' rule when HTM securities are sold
- 4Apply CECL-based credit loss allowances to HTM debt securities