Company X accounted for its portfolio of investments in marketable securities at historical cost. The company invested primarily in long-term, liquid financial instruments (typically five-year bonds). Although he expected that a large portion of its portfolio would be held until the bonds matured, the CEO wanted to set aside the remainder as ready to be sold at any time. Indeed, adverse events triggering losses could occur any day, and the company needed to maintain a certain level of liquidity to meet immediate cash needs.

Question How would you account for the companys marketable securities?

See Exhibit 2 for price data on a 100,000-bond representative of the company's investments.

Exhibit 2 Market Price for Five-Year AAA Prime Credit Bond, Representative of Tokyo AFM's Holdings 108 106 104 102 100 98 Dec. 31,2000: 100 Dec. 31, 1996: 105 Dec. 31, 1998:101 96 94 92 90 Dec. 31, 1997:98 Dec. 31, 1999:95 88 1