Banking Practice Exam 2025 – 400 Free Practice Questions to Pass the Exam

FASB 115, which addresses accounting for investments in debt and equity securities, specifically outlines different treatment for various types of securities. The correct answer revolves around the classification of held-to-maturity securities.

Held-to-maturity securities are those that a company has the intent and ability to hold until maturity. These are typically debt securities like bonds. According to FASB 115, these securities should be reported at their historical cost. This means that the company records the investment at the price paid at acquisition and does not adjust this amount for changes in market value over time, as long as the company intends to hold these securities until they mature. This treatment reflects the conservative nature of accounting, where historical cost is relied upon for reliability.

In contrast, trading securities are reported at fair value with unrealized gains and losses included in earnings, and available-for-sale securities are also reported at fair value, but their unrealized gains and losses are reported in a separate component of equity rather than affecting net income directly. So, for the specific context of historical costs, held-to-maturity securities are the only category mandated to follow this accounting principle under FASB 115.