Final answer:
Investments in debt securities should be recorded at historical cost, which includes purchase price and associated costs. Historical cost is used rather than fair value or market value on the acquisition date, impacting investment amounts based on rates of return.
Step-by-step explanation:
Investments in debt securities should be recorded on the date of acquisition at historical cost. This accounting treatment reflects the actual amount paid for the securities at the time of purchase, not adjusted for interest, inflation, or changes in market value. When an investment is made, the historical cost includes the price of the security plus any related purchase costs, such as brokerage fees and commissions. It's important for companies to keep track of investments and consider the cost of financial capital when making investment decisions. According to generally accepted accounting principles (GAAP), if a firm knows the interest rate and the return it can capture to society, this will affect how much the firm is willing to invest, as indicated by the example where the effective rate of return is adjusted to 4%, leading to a different investment value.