Sun Corp. had investments in marketable debt securities costing $650,000 that were classified as available-for-sale. On June 30, Year 2, Sun decided to hold the investments to maturity and accordingly reclassified them to the held-to-maturity category on that date. The investments' fair value was $575,000 at December 31, Year 1, $530,000 at June 30, Year 2, and $490,000 at December 31, Year 2. Sun does not elect the fair value option to account for these investments. What amount of loss from investments should Sun report in its Year 2 income statement?

Question

Luna Choi

Business

4 July, 22:31

Sun Corp. had investments in marketable debt securities costing $650,000 that were classified as available-for-sale. On June 30, Year 2, Sun decided to hold the investments to maturity and accordingly reclassified them to the held-to-maturity category on that date. The investments' fair value was $575,000 at December 31, Year 1, $530,000 at June 30, Year 2, and $490,000 at December 31, Year 2. Sun does not elect the fair value option to account for these investments. What amount of loss from investments should Sun report in its Year 2 income statement?

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Ansley Hendrix · Answer 1

As per the

When an asset is reclassified from available for sale to amortized cost fair value on the date of reclassification becomes the new carrying amount of the financial asset. However, the cumulative gain or loss previously recognised in other comprehensive income is removed from equity and adjusted against the fair value of the financial asset at the reclassification date. this will not affect the profit and loss of the entity.). The effective interest rate and the measurement of expected credit losses are not adjusted as a

result of the reclassification

Investment Carrying Amount AFS = 530000

Fair Value = 490000

40000

proposed entries

OCI 40000

investment AFS 40000

investment at amortization cost 490000

investment at available for sale 490000