Ralmond Industries owns an investment that experienced a decline during 2015 that has been judged to be "other than temporary." The investment is held in Ralmond's available-for-sale debt portfolio,and Ralmond does not expect to sell the security and it is unlikely that Ralmond will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss.It was purchased in March 2014 at a cost of $460,000.At the end of 2014,the fair value of the investment was $520,000 and its amortized cost basis was $454,000.At the end of 2015,the fair value of the investment is $410,000 and its amortized cost is $448,000.At the end of 2015,the present value of expected cash flows associated with the security discounted at the effective interest rate implicit when it was originally acquired is $432,000.What amount of loss will Ralmond Industries report on its income statement for the year ending December 31,2015 related to this investment?

A) an unrealized loss of $16,000.
B) an unrealized loss of $38,000.
C) an unrealized loss of $44,000.
D) an unrealized loss of $22,000.

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Zybrea Knight · Accepted Answer

Final Answer : A, Explanation :  The amount of the total impairment related to the credit loss is recognized in earnings (credit loss = the difference between the amortized cost basis of a debt security and the present value of expected cash flows for that security discounted at the effective interest rate implicit in the debt instrument when it was originally acquired).In this case,$448,000 - $432,000 = $16,000.

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