Sun Corp. had investments in marketable debt securities costing $650,000 that were classified as available-for-sale. On June 30, Year 2, Sun decided to hold the investments to maturity and accordingly reclassified them to the held-to-maturity category on that date. The investments' fair value was $575,000 at December 31, Year 1, $530,000 at June 30, Year 2, and $490,000 at December 31, Year 2. Sun does not elect the fair value option to account for these investments. What amount of loss from investments should Sun report in its Year 2 income statement?

Explanation:

As per the

When an asset is reclassified from available for sale to amortized cost fair value on  the date of reclassification becomes the new carrying amount of the financial asset.  However, the cumulative gain  or loss previously recognised in other comprehensive income is removed  from equity and adjusted against the fair value of the financial asset at  the reclassification date. this will not affect the profit and loss of the entity.). The effective interest rate  and the measurement of expected credit losses are not adjusted as a

result of the reclassification

Investment Carrying Amount  AFS  =             530000

Fair Value                                          =             490000

                                                                           40000

proposed entries

OCI         40000

    investment AFS  40000

investment at amortization cost   490000

           investment at available for sale      490000

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