Bridges Inc. holds a debt investment from RiteCo and had viewed that investment as adversely affected by particular events in the market for RiteCo's products, but without specific information about deterioration of RiteCo's credit quality. However, Bridges just learned that RiteCo is entering bankruptcy. As a result of receiving this information, what is Bridges likely to do with the RiteCo investment?

Question

Quizplus · Accepted Answer

Bridges is likely to transfer the investment from Bucket 2 to Bucket 3 because the news of RiteCo entering bankruptcy indicates a significant deterioration in credit quality, which typically requires moving the investment to a higher risk category (Bucket 3) under the expected credit loss model.