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 2020, 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 2016. 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 calculates that the bonds have incurred credit losses. Before-tax net income for 2016 will be reduced by:

$0.

$10,000.

$20,000.

$30,000.

*** If the fair value of a debt investment that is classified as an available-for-sale investment declines for a reason that is viewed as "other than temporary" because it is viewed as "more likely than not" that the investor will be required to sell the investment prior to recovering the amortized cost of the investment less any credit losses arising in the current year:

The investment is not written down to fair value.

The investment is written down to fair value, and the impairment loss is recognized in net income.

The investment is written down to fair value, and the impairment loss is recognized in accumulated other comprehensive income.

The investment is written down to fair value, and only the noncredit loss is included in net income.