As of 12/31/17,XYZ Inc.had Available-for-Sale debt investments with a fair value of $522,000,an amortized cost of $535,000,and a credit balance in the Fair Value Adjustment - Available for Sale Debt Investments account of $7,500.What is the amount of gain or loss reported by XYZ related to these available-for-sale debt investments and how should it be reported?

Question

Quizplus · Accepted Answer

The fair value of the debt investments is less than their amortized cost, resulting in an unrealized loss. This loss should be reported as part of Other Comprehensive Income in the Fair Value Adjustment - Available for Sale Debt Investments account, which has a credit balance of $7,500. Therefore, the unrealized loss would be calculated as $7,500 - ($522,000 - $535,000) = $6,500, and it should be reported as part of Other Comprehensive Income. Choice B is incorrect because it reports the loss as part of Net Income, which is incorrect for available-for-sale securities. Choice C is incorrect because it reports a loss of $20,500, which is not the correct amount. Choice D is incorrect because it reports the loss as part of Net Income, which is incorrect.