Norman Corporation owns an investment that it had originally classified as available for sale.This investment is now more appropriately treated as held to maturity.Norman would ________.

Question

Quizplus · Accepted Answer

When an investment is reclassified from available for sale to held to maturity, the fair value at the reclassification date becomes the new cost basis for future amortization. Therefore, Norman would reclassify the investment as held to maturity and record the fair value at the reclassification date as the investment's cost basis for future amortization. The other options are not correct because a prior period adjustment to retained earnings is not necessary, and any unrealized gains or losses on the reclassification would not be recognized in net income. Option D is also not correct because the investment needs to be reclassified to reflect its current classification.

Norman Corporation Owns an Investment That It Had Originally Classified