In this situation, Alexander does not recognize any impairment even though it has an expected credit loss of $110,000 because the fair value of its security is above its amortized cost." What's the rationale for this? The book also states, In summary, companies recognize credit losses on an available-for-sale security when the securitys fair value is less than amortized cost. Based off of this rule, an available-for-sale security's fair value could be one dollar more than the amortized cost and have a credit loss of $500,000, but they don't have to report the credit loss (impairment) just be cause the fair value is above the amortized cost. My question is: Why do companies only recognize credit losses on an available-for-sale security when the security's fair value is less than amortized cost? Why would my way of doing things be problematic? I would think the credit loss in this example should be $10,000 which the difference between the credit loss and the fair value adjustment ($100,000).

Situation A. Alexander does not recognize an impairment loss because the fair value of $1,100,000 is higher than the amortized cost of $1,000,000. The entry Alexander makes is to record an unrealized holding gain of $100,000($1,100,000$1,000,000) in other comprehensive In this situation, Alexander does not recognize any impairment even though it has an expected credit loss of $110,000 because the fair val of its security is above its amortized cost. Situation B. Alexander recognizes an impairment loss of $40,000($1,000,000$960,000) even though the expected credit loss is $110,000. In other words, Alexander's impairment loss is limited to the fair value floor. Alexander makes the following entry to record this