CPA Exam Lab
Section 2: 30–40%2E2

Financial Assets at Amortized Cost

HTM sounds simple until the AICPA gives you a bond at a discount and asks for year 3 carrying value. You must use the effective interest method — amortizing discount increases the carrying value each year. The trap: candidates forget that the carrying value increases (for discount bonds) or decreases (for premium bonds) every period. Know the direction and the formula or you'll compute the wrong number.

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