Fair Value Reporting for Debt Securities

Hey guys.

Imagine you bought a bond at $110 (premium) and at the end of the year, the fair value is $115. My questions are:

  1. Would the interest income be always as the effective interest rate?
  2. In the Financial Statements, would we use the carrying value at amortized cost and submit adjustments to fair value in another category of the BS? or we would just record the changes in the bond and any unrealized gain/loss be in retained earnings?
  3. Are the unrealized gain/loss recognized comparing the changes in fair value from period to period? or between amortized cost and fair value? (as this video is shown: https://www.youtube.com/watch?v=fQ1tG2EbxRU)
  4. It is very straightforward to calculate the interest income when you have a HTM bond (because you use the amortized cost), but with a HFT or AFS, how do you record the unrealized gain/loss? i.e., the interest income will be different for the coupon payment. Where does it go this difference? (in the HTM it goes to amortize the bond, but for fair value, where does it go?)

I haven’t found this answers and it’s driving me a little crazy.

Please help!

Already solved!

Hi Snfuenza,

I have the same questions and it drives me crazy. Could you please classify a little bit?