Question
Espana Corporation purchased $100,000 of Hales Inc. 6% bonds at par and classifies its investment as available for sale. Unfortunately, a combination of problems at
Espana Corporation purchased $100,000 of Hales Inc. 6% bonds at par and classifies its investment as available for sale. Unfortunately, a combination of problems at Hales and in the debt market caused the fair value of the Hales investment to decline to $70,000 during 2018. Espana views this decline as an other-than-temporary impairment. Espana calculates that, of the $30,000 drop in fair value, $10,000 of it relates to credit losses and $20,000 relates to non-credit losses. If Espana accounts for the Hales bonds under IAS No. 39, before-tax net income for 2018 will be reduced by
A.$20,000.
B. $10,000.
C. $0.
D. $30,000.
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