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Worked example · EX:investments-fair-value-and-equity-method/linden-peak-debt-security-lanes

Run one bond through three supplied classifications

Hold contractual cash flows constant while reconciling HTM, AFS, and trading measurement across interest, amortized cost, credit, fair value, earnings, OCI, and reported amount.

Updated Aug 8, 2026 Review due Nov 8, 2026
On this page
  1. Shared contractual and amortized-cost row
  2. Three reporting bridges
  3. What the schedule cannot prove
Worked-example setupScope and assumptions
  • Linden Peak, each holding, classification memorandum, credit conclusion, valuation, date, and amount is fictional and supplied for instruction.
  • Each lane uses a separate holding with identical $500,000 face, 5 percent annual coupon, 6 percent nominal annual effective yield, semiannual payments, and six periods at acquisition.
  • The first semiannual reporting date follows acquisition; supplied fair values are $470,000 for the HTM comparison and AFS holding and $490,000 for the trading holding.
  • The HTM expected-credit-loss allowance is supplied as $4,500; the AFS credit component is supplied as $3,000; the example does not estimate either amount.
  • Tax effects, accrued interest conventions, transaction costs, sales, transfers, and presentation subtleties outside the stated lanes are omitted.
Period
First semiannual period after the fictional acquisition date
Units
US dollars and nominal annual rates with semiannual compounding
Rounding
Retain full precision; display dollars to cents and rates to at least six decimals

Shared contractual and amortized-cost row

Each holding promises $12,500 cash interest every six months. Discounting the six coupons and $500,000 principal at 3 percent per period gives acquisition amortized cost of $486,457.02.

cash interest = $500,000 × 5% ÷ 2 = $12,500.00
interest revenue = $486,457.02139030455 × 3% = $14,593.710641709136
discount amortization = $14,593.710641709136 − $12,500 = $2,093.710641709136
ending amortized cost = $488,550.7320320137

That row is identical because the debt cash flows and effective yield are identical. Classification changes the next measurement layer.

Three reporting bridges

Supplied lane Ending amortized cost Credit in earnings Fair-value effect Reported asset
HTM $488,550.73 $(4,500.00) allowance none recognized in this lane $484,050.73
AFS $488,550.73 $(3,000.00) allowance $(15,550.73) noncredit OCI $470,000.00
Trading $488,550.73 separate allowance not used in this bounded lane $1,449.27 earnings gain $490,000.00

For AFS, the total decline from amortized cost to fair value is $18,550.73. The supplied $3,000 credit component is recognized through the allowance and earnings. The remaining $15,550.73 is the noncredit OCI loss. The two layers bridge exactly to $470,000 fair value.

What the schedule cannot prove

The formulas do not establish intent and ability, classify any holding, estimate expected credit loss, validate a quoted or modeled fair value, select a valuation technique, or approve disclosure. Those judgments remain in the controlled evidence packet.

Reproduce · vary · inspect

Quantitative companions

Choose from 2 ways to work with this calculation.

uv · Python Trace the three debt-security lanes in readable PythonDownload .py Excel workbook Open the debt-security classification workbookDownload .xlsx

Verified calculation · investment measurement analysis

The curriculum loader recomputed this example before it entered the site build. Expand any structured input to inspect the stated facts.

debt securities
3 fields
Inspect data
{
  "collect_bond": {
    "classification": "held_to_maturity",
    "credit_allowance": 4500,
    "effective_annual_rate": 0.06,
    "face_amount": 500000,
    "payments_per_year": 2,
    "reporting_fair_value": 470000,
    "stated_annual_rate": 0.05,
    "total_periods": 6
  },
  "liquidity_bond": {
    "classification": "available_for_sale",
    "credit_allowance": 3000,
    "effective_annual_rate": 0.06,
    "face_amount": 500000,
    "payments_per_year": 2,
    "reporting_fair_value": 470000,
    "stated_annual_rate": 0.05,
    "total_periods": 6
  },
  "trading_bond": {
    "classification": "trading",
    "credit_allowance": 0,
    "effective_annual_rate": 0.06,
    "face_amount": 500000,
    "payments_per_year": 2,
    "reporting_fair_value": 490000,
    "stated_annual_rate": 0.05,
    "total_periods": 6
  }
}

Recomputed result

Values recomputed by the curriculum loader
MeasureValue
collect bond credit loss earnings4,500
collect bond ending amortized cost488,550.732
collect bond interest revenue14,593.7106
collect bond opening amortized cost486,457.0214
collect bond reported amount484,050.732
liquidity bond credit loss earnings3,000
liquidity bond ending amortized cost488,550.732
liquidity bond noncredit fair value oci-15,550.732
liquidity bond reported amount470,000
trading bond ending amortized cost488,550.732
trading bond reported amount490,000
trading bond unrealized earnings1,449.268