At the beginning of Year 2, a company invested $40,000 in a debt security. At that time the security was appropriately classified as an available-for-sale security. At the end of Year 2, the security had a fair value of $28,500. The change in fair value is deemed temporary. How should this change in fair value be reported in the financial statements?

Question

Business

Susan Frank

23 November, 07:15

At the beginning of Year 2, a company invested $40,000 in a debt security. At that time the security was appropriately classified as an available-for-sale security. At the end of Year 2, the security had a fair value of $28,500. The change in fair value is deemed temporary. How should this change in fair value be reported in the financial statements?

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Pham · Answer 1

As an unrealized loss of $11,500 as part of other comprehensive income.

Explanation:

Accounting rules require that the investment "be written down" to current value, with a corresponding charge against OCI.