Nichols Corporation Purchased $100,000 of Holly Inc

Nichols Corporation purchased $100,000 of Holly Inc. 6% bonds at par with the intent and ability to hold the bonds until they matured in 2022, so Nichols classifies its investment as held to maturity. Unfortunately, a combination of problems at Holly and in the debt market caused the fair value of the Holly investment to decline to $70,000 during 2018. Nichols calculates that, of the $30,000 decrease in fair value, $10,000 of it relates to credit losses and $20,000 relates to noncredit losses.
- Assume that Nichols concludes that the Holly bonds are other-than-temporarily impaired because Nichols believes it is more likely than not that it will have to sell the Holly bonds before the bonds have a chance to recover their fair value. Before-tax net income for 2018 will be reduced by:

A) $0.
B) $10,000.
C) $20,000.
D) $30,000.