Question
Rushia Company has a non-trading investment in the 10%, 10-year bonds of Pear Company. The investment's carrying value is $3,200,000 at December 31, 2020. On
Rushia Company has a non-trading investment in the 10%, 10-year bonds of Pear Company. The investment's carrying value is $3,200,000 at December 31, 2020. On January 9, 2021, Rushia learns that Pear Company has lost its primary manufacturing facility in an uninsured fire. As a result, Rushia determines that the investment is impaired and now has a fair value of $2,300,000. In June, 2022, Pear Company has succeeded in rebuilding its manufacturing facility, and its prospects have improved as a result.
If Rushia Company determines that the fair value of the investment is now $3,900,000 and is using GAAP for its external financial reporting, which of the following is true?
Rushia may record a recovery of $700,000.
Rushia may record a recovery of $900,000.
Rushia may record a recovery of $1,600,000.
Rushia is prohibited from recording the recovery in value of the impaired investment.
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