U.S.GAAP and IFRS require firms to account for debt securities held-to-maturity that are deemed to be impaired.The investor recognizes (debits) _____ and reduces (credits) _____.

Question

Quizplus · Accepted Answer

When a debt security held-to-maturity is considered to be impaired, the investor recognizes an impairment loss in net income and reduces the carrying value of the investment on the balance sheet. Therefore, the correct choice is D, which states that the investor recognizes an impairment loss (included in net income) and reduces the balance sheet carrying value of the investment. Choice A is incorrect because impairment losses on debt securities held-to-maturity are not included in other comprehensive income; they are recognized in net income. Choice B is also incorrect because impairments reduce the carrying value of the investment, not create an impairment loss. Choices C and E are also incorrect because impairment losses are recognized in net income, not in other comprehensive income or in a reserve account on the balance sheet.

USGAAP and IFRS Require Firms to Account for Debt Securities