Question

A U.S. company holds available-for-sale debt securities, purchased for $1,000,000 and carried at $1,500,000. At the end of the current year, the company determines that the fair value of these securities is $1,300,000, and the decline in value is due to an increase in the market rate of interest. How will the adjusting entry to record the decline in value affect income and other comprehensive income?

Answer 1

Answer:

The reduction of value of the available for sale securities of $200,000 would be credited to investment account and debited to statement of profit or loss

Explanation:

The reason for not posting the debit to other comprehensive income section is because the securities is held at fair value through profit or loss

This means that the securities were acquired in the first place to take advantage of rising prices in the securities market