At the beginning of Year 2, a company invested $40,000 in a debt security. At that time the security was appropriately classified as an available-for-sale security. At the end of Year 2, the security had a fair value of $28,500. The change in fair value is not due to credit losses. How should this change in fair value be reported in the financial statements

The Change of $11500 would be reported as unrealized Losses in the statement of comprehensive income

Explanation:

Debt security are recognised at their Fair Value in the Financial statements. Changes in the Fair Value are recognized in the Statement of comprehensive income as Unrealized Gains or Unrealized Losses.

The Fair Value declined from $40 000 to $28500, The loss of $11500 ($40 000 - $28500) will be reported as Unrealized Losses under OTHER INCOME in the statement of comprehensive income

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