Question

Clara Corp. does not elect to use the fair value option to report financial assets. For marketable debt securities included in Clara's held-to-maturity portfolio, which of the following amounts should be included in the period's net income?Unrealized temporary losses during the periodGains on securities sold during the periodPermanent decline in valuea) III onlyb) II onlyc) II and IIId) I, II, and III

Answer 1

II and III

That is Gains on securities sold during the period and Permanent decline in value.

Step-by-step explanation:

Fair value reporting involves use of prevailing market prices for estimating the value of assets and liabilities of a company when preparing financial statements. It represents the value at which an item can be sold to a third party under market conditions.

If Clara corp does not use fair value reporting then they will use historical cost reporting. This involves recording cost at which an item is bought and using this as asset or liability value without considering changes in market value.

Gains on securities sold during the period and permanent decline in value are elements of historical cost and will appear in the period's net income.