Explain the three types of classifications for investments

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Question 1: When a company purchases a bond with face amount $1,000, it may pay more or less than $1,000. Explain why the price can be different from the face amount and what is a premium or discount.

By the time the bond matures, the company is paid back $1,000. Explain how the premium (or discount) is amortized.

Question 2: Identify and explain the three types of classifications for investments in debt securities. How unrealized holding gains and losses should be reported for each?

Question 3: If the cost of a financial investment (either in bonds or in stocks) is $5,000, and its fair value adjustment account has a debit balance of $200. At what amount do you report the investment on the balance sheet? What does this amount mean?

Question 4: What is the GAAP definition of fair value? What is the fair value option?

Reference no: EM132419158

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