Asked by Chris Leggio on May 03, 2024
Verified
For available-for-sale debt securities,if a firm intends to sell the security or it is more likely than not that the firm will be required to sell the security before recovery of its amortized cost basis less current-period credit loss,then the amount of impairment
A) is recognized in other comprehensive income equal to the entire difference between the investment's amortized cost basis and its fair value at the balance sheet date.
B) is separated into two components: the amount representing the credit loss and the amount related to all other factors.
C) is separated into two components: the amount recognized in income and the amount deferred until it is realized.
D) is recognized in earnings equal to the entire difference between the investment's amortized cost basis and its fair value at the balance sheet date.
Available-For-Sale Debt Securities
Debt securities that are neither classified as held-to-maturity nor trading securities, and companies can sell these before their maturity date if needed.
Amortized Cost Basis
A financial calculation method that gradually writes off the initial cost of an asset over time.
Comprehensive Income
An all-encompassing measure of income that includes all changes in equity during a period except those resulting from investments by and distributions to shareholders.
- Understand the principles of amortized cost, the assessment of fair value, and the depreciation of financial instruments.
Verified Answer
ZK
Zybrea KnightMay 04, 2024
Final Answer :
D
Explanation :
If the firm intends to sell an available-for-sale debt security or it is more likely than not that it will be required to sell the security before recovering its amortized cost basis less current-period credit loss, then the amount of impairment is recognized in earnings equal to the entire difference between the investment's amortized cost basis and its fair value at the balance sheet date. Therefore, Option D is the correct answer.
Learning Objectives
- Understand the principles of amortized cost, the assessment of fair value, and the depreciation of financial instruments.