Your client, Cascade Company, is planning to invest some of its excess cash in 5-year revenue bonds issued by the county and in the stock of one of its suppliers, Teton Co. Teton's shares trade on the over-the-counter market. The company would like you to conduct some research on the accounting for these investments. Research accounting issues listed below using the FASB Codification to illustrate the application of GAAP. Since the Teton shares do not trade on one of the large stock markets, Cascade argues that the fair value of this investment is not readily available. According to the authoritative literature, when is the fair value of a security "readily determinable"? How is an impairment of a security accounted for? To avoid volatility in their financial statements due to fair value adjustments, Cascade debated whether the bond investment could be classified as held-to-maturity; Cascade is pretty sure it will hold the bonds for 5 years. How close to maturity could Cascade sell an investment and still classify it as held-to-maturity? What disclosures must be made for any sale or transfer from securities classified as held-to-maturity? Instructions: Provide Codification references for issues listed above Write a memo to your client explaining accounting treatment for the above investments based on your FASB Codification research

The Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) is the authoritative source of Generally Accepted Accounting Principles (GAAP) for public and private companies and not-for-profit organizations. Below is an overview of the accounting treatment for Cascade Company's proposed investments in revenue bonds and Teton Co.’s stock, along with relevant Codification references.

Fair Value of Investments: According to the FASB ASC 820, Fair Value Measurement, the fair value of a financial instrument is "readily determinable" if the value can be determined through quoted prices in active markets for identical assets or liabilities, or through alternative pricing sources and models that are corroborated by observable market data. If Teton Co.'s shares are not traded on a large stock market, and if quoted prices are not available through other sources (ASC 320-10-35), Cascade Company will need to use valuation techniques to estimate the fair value.

Impairment of Securities: The accounting for impairment of a security is addressed in ASC 320 for debt securities and ASC 321 for equity securities. For debt securities, if Cascade suspects that an impairment exists (e.g., due to credit losses), it should assess whether the impairment is temporary or other-than-temporary (ASC 320-10-35). For equity securities, under ASC 321-10-35, Cascade must evaluate the investment for impairment whenever an event or change in circumstances indicates that the fair value of the investment is below its carrying amount.

Held-to-Maturity Classification: For Cascade to classify the revenue bond investment as held-to-maturity, the company must have the positive intent and ability to hold the investment until its maturity date (ASC 320-10-25). Selling or transferring securities close to but before maturity may undermine the held-to-maturity classification unless the sale or transfer is attributable to an isolated event that is beyond the control of the issuer, abnormal and nonrecurring, and could not have been reasonably anticipated (ASC 320-10-25).

Disclosures for Sale or Transfer from Held-to-Maturity: If Cascade were to sell or transfer a security from the held-to-maturity category, disclosures must be made that include the reason for the sale or transfer and the facts and circumstances leading to the decision (ASC 320-10-50). Additionally, the financial statements must disclose the gain or loss from the sale or transfer.

In summary, based on the codification research, Cascade should measure the fair value of Teton Co.'s stock using appropriate valuation techniques if its shares are not actively traded. For the bonds, if categorized as held-to-maturity, Cascade must disclose any sales or transfers, including the reasons and the related gains or losses.

Extra: For students, it's important to understand the underlying principles behind these accounting rules:

- **Fair Value**: This is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When markets for certain investments are not active, companies must use other methods to estimate fair value, including various valuation techniques.

- **Impairment**: This is a decline in the recoverable value of an investment below its carrying amount on the balance sheet. Recognizing impairment is a way to ensure that the investment is not overstated in the company's financial statements.

- **Held-to-Maturity**: This is a category for debt securities that a company has the positive intent and ability to hold until maturity. It allows the securities to be accounted for at amortized cost, rather than having their value fluctuate with the market as with trading or available-for-sale securities.

- **Disclosures**: The objective of financial statements' disclosures is to provide transparency and help financial statement users understand the impact certain transactions have on the company's financial position and performance.