Which statement matches GAAP valuation rules for investment assets?

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Multiple Choice

Which statement matches GAAP valuation rules for investment assets?

Under US GAAP, investment securities are categorized by management’s intent and ability, and this determines how they’re measured and where gains or losses flow. Trading (HFT) securities are carried at fair value with changes in net income. Held-to-maturity (HTM) securities are carried at amortized cost, with impairment recognized in earnings only if it’s other-than-temporary. Available-for-sale (AFS) securities are carried at fair value, with unrealized gains and losses reported in other comprehensive income rather than in earnings (until they’re sold or impaired). So the mapping that fits GAAP is: AFS means fair value through OCI, HTM means amortized cost, and HFT means fair value through income. The other options mix these treatments in ways that contradict the GAAP rules.

Under US GAAP, investment securities are categorized by management’s intent and ability, and this determines how they’re measured and where gains or losses flow. Trading (HFT) securities are carried at fair value with changes in net income. Held-to-maturity (HTM) securities are carried at amortized cost, with impairment recognized in earnings only if it’s other-than-temporary. Available-for-sale (AFS) securities are carried at fair value, with unrealized gains and losses reported in other comprehensive income rather than in earnings (until they’re sold or impaired).

So the mapping that fits GAAP is: AFS means fair value through OCI, HTM means amortized cost, and HFT means fair value through income. The other options mix these treatments in ways that contradict the GAAP rules.

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