Final answer:
Impairment loss is not typically recognized for held-to-maturity investments unless there's evidence of credit impairment. The company's bond is recorded at amortized cost, and a change in market value does not require an impairment loss on the financial statements unless the company expects not to recover the carrying amount through future cash flows.
Step-by-step explanation:
When considering held-to-maturity investments, the company that invested in the corporate bond does so with the intent to hold it until its maturity date. In this case, the U.S. company purchased a $10,000,000 face value bond with a 4% coupon rate at a price of $9,727,675 that yields 5%. Despite the end-of-year fair value dropping to $7,000,000 due to an other than temporary decline, held-to-maturity securities are carried at amortized cost on the balance sheet and are not typically subject to write-downs in value due to changes in market price.
Since the decline in value is described as 'other than temporary', an impairment loss might need to be recognized if this were a security categorized differently. However, for a held-to-maturity investment, the accounting standards generally allow the bond to remain on the books at amortized cost unless there is credit impairment. In the latter case, if there is evidence that the company will not be able to recover the carrying amount of the bond, it may have to recognize an impairment loss equal to the difference between the bond's carrying amount and the present value of expected future cash flows discounted at the bond's original effective interest rate.
Therefore, without specific information indicating credit impairment, the impairment loss on this bond for the year cannot be determined based solely on a market price decline.