GAAP: If the bonds are intended to be held to maturity, they are valued
at amortized cost. If the bonds are intended to be traded, they are
valued at MV. If the bonds are available for sale, they are valued
using the equity method of accounting (my understanding is that that
means they the company whose stock it is is valued using GAAP equity -
but I don't think we need to know this). This was the big change for
one of the SFAS (I think 112 or 114 - it is just a blip in the IASA
text, we don't have to know the whole SFAS, just that list). The other
detail is that if bonds are intended to be held to maturity AND there
has been a permanent decline in the value, they are at MV.
For the most part, bonds are at amortized for both SAP and GAAP. If it
is a multiple choice or a TF, that is going to be my answer. For an
essay question, they used to ask this a lot in the past, and they seemed
to simply accept amortized as the answer. I'll have to wait until I'm
in there to see if I will write the big detailed answer or the short 1
word answer. Also, I need to do more old exam problems before I make
the decision.
For the list of the differences between SAP and GAAP, bonds is one of
the categories. The detail is above.
----------
From: Oswald, Apryle
To: 'studygroup7'
Subject: Bonds
Date: Wednesday, October 21, 1998 11:01AM
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I am finding contradictory information in the readings and was wondering
if anyone knows the truth. Both Wiser and D'arcy say that one of the
distinguishing features between SAP and GAAP is that bonds are valued at
amortized cost under SAP. However, the AICPA auditing paper claims that
in most situations bonds are amortized under both SAP and GAAP. Which
is correct?