Held-to-maturity

(adjective)

any security that an investor intends to retain until its term expires

Related Terms

Examples of Held-to-maturity in the following topics:

  • Amortized Cost Method

    • Debt held to maturity is shown on the balance sheet at the amortized acquisition cost.
    • The definition of a debt is held-to-maturity is a debt which the company has both the ability and intent to hold until maturity.
    • All changes in market value are ignored for debt held to maturity.
    • Debt held to maturity is shown on the balance sheet at the amortized acquisition cost.
    • Explain how a company would apply the amortized cost method to a debt held to maturity

  • Accounting for Interest Earned and Principal at Maturity

    • At maturity, firms should debit cash and credit held to maturity investments the balance of the principal payment.
    • The issuer has to repay the nominal amount on the maturity date (which can be any length of time).
    • During the life of the debt held to maturity, the company holding the debt will record the interest received at the designated payment dates.
    • Remember the original entry debited the held to maturity investment account and credit cash.
    • Summarize the journal entry required to record a debt held to maturity

  • Accounting Methodologies: Amortized Cost, Fair Value, and Equity

    • Due to different durations of holding and other factors, companies use several accounting methodologies, including amortized cost, fair value, and equity.
    • If a business holds debt securities to maturity with the intent to sell are classified as held-to-maturity securities.
    • Held to maturity securities are reported at amortized cost less impairment.
    • Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities.
    • Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities.

  • Accounting for Sale of Debt

    • How debt sales are recorded depends on whether the debt is classified as "held-to-maturity," "a trading security," or "available-for-sale".
    • If the company intends to hold the debt until it matures, it must be classified as a "held-to-maturity" security.
    • When debt is acquired and is intended to be held until maturity, it is recorded first by debiting a "Debt Investment Account," and then by crediting "Cash" for the amount the debt was purchased.
    • Debt securities can be classified as "held-to-maturity," a "trading security," or "available-for-sale. "
    • Summarize how to record the sale of a held-to-maturity, trading security and available for sale debt

  • Key Considerations for the Statement of Cash Flows

    • In addition, the statement is used to assess the following: the company's ability to meet its obligations to service loans, pay dividends, etc.; the reasons for differences between reported and related cash flows; and the effect on its finances of major transactions in the year.
    • Securities that are held for trade are generally investments that a business holds for a very short period of time with the intent to sell for a quick gain.
    • Transactions include the sale and acquisition of property, plant, and equipment; the collection and granting of long-term loans to others; and the trading of available-for-sale and held-to-maturity securities of other businesses.
    • Securities that are held-to-maturity are those that a business plans to hold onto until the security's term is up.
    • An available-for-sale security is an investment that does not qualify as "held-to-maturity" or "trading".

  • Redeeming at Maturity

    • As long as all due payments have been made, the issuer has no further obligations to the bondholders after the maturity date.
    • For coupon bonds, the bond issuer is supposed to pay both the par value of the bond and the last coupon payment at maturity.
    • A description of bonds issued including the effective interest rate, maturity date, terms, and sinking fund requirements are included in the notes to financial statements.
    • Debt securities can be classified as "held-to-maturity," a "trading security," or "available-for-sale. "
    • Explain how to record the retirement of a bond at maturity

  • Redeeming Before Maturity

    • Bonds can be redeemed at or before maturity.
    • For bond issuers, they can repurchase a bond at or before maturity.
    • Redemption is made at the face value of the bond unless it occurs before maturity, in which case the bond is bought back at a premium to compensate for lost interest.
    • Some bonds give the issuer the right to repay the bond before the maturity date on the call dates.
    • Some bonds give the holder the right to force the issuer to repay the bond before the maturity date on the put dates.

  • Characteristics of Bonds

    • The issuer has to repay the nominal amount on the maturity date.
    • The length of time until the maturity date is often referred to as the term or maturity of a bond.
    • short term (bills): maturities between one to five year (instruments with maturities less than one year are called money market instruments)
    • Callability — Some bonds give the issuer the right to repay the bond before the maturity date on the call dates.
    • Putability — Some bonds give the holder the right to force the issuer to repay the bond before the maturity date on the put dates.

  • Current Maturities of Long-Term Debt

    • Long-term liabilities are liabilities with a due date that extends over one year, such as a notes payable that matures in 2 years.
    • Examples of long-term liabilities are debentures, bonds, mortgage loans and other bank loans (it should be noted that not all bank loans are long term since not all are paid over a period greater than one year. ) Also long-term liabilities are a way for a company to show the existence of debt that can be paid in a time period longer than one year, a sign that the company is able to obtain long-term financing .
    • The portion of the liability considered "current" is moved from the long-term liabilities section to the current liabilities section.
    • The position of where the debt should be disclosed is based on its maturity date in relation to the due date of other current liabilities.
    • Bonds are a form of long-term debt because they typically mature several years after their original issue date.

  • Types of Cash

    • A certificate of deposit, or CD, is a financial product offered by banks to their customers.
    • CDs are similar to savings accounts in that both types of accounts are insured by the FDIC up to a value of $250,000.
    • Generally only demand CDs or CDs that will mature within three months of when the financial statements are prepared are cash equivalents.
    • However, these types of instruments are only included in cash if they mature within three months from when the the financial statements are prepared and there is a minimal risk of these investments losing their value.
    • So if a corporate bond matures within three months, but the company that issued it may not be able to settle the debt, one would not be able to include that as a cash equivalent.