FASB Codification Case #3

Classification of Bond Investment

Facts

On December 1, YR01 Target Inc. purchased, as an investment, bonds issued by General Steel

Co. These bonds have a face amount of $1,000,000 and were purchased at 106. The management

of Target Inc. has the positive intent and financial ability to hold these bonds until they mature

on July 1, YR05. The bond indenture agreement includes a provision which permits General

Steel Co. to call the bonds any time after August 1, YR02. If the bonds are called General Steel

Co. is required to pay the full face amount of the bonds plus any accrued interest.

Question

Given Target’s positive intent and financial ability to hold these bonds until they mature, how

should this bond investment be classified on the Target Inc. balance sheet at December 31,

YR01?

Required

1. Provide a brief written description of the proper classification of the bond investment on

Target’s balance sheet.

2. Identify the specific paragraph of the FASB Codification which addresses this issue and

submit a printout of this paragraph with your solution.

Grade Value

This case counts as a bonus question (maximum 2 percentage points) for examination #2.

You must work independently on this case (this is not a group project).

Due Date

Start of our next class meeting.