Question

Metlock Company in its first year of operations provides the following information related to one of its available-for-sale debt securities at December 31, 2020. Amortized cost $51,000 Fair value 42,000 Expected credit losses 12,550 New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is incorrect. What is the amount of the credit loss that Metlock should report on this available-for-sale security at December 31, 2020

Answer 1

The amount of credit loss that Metlock Company should report on this available for sale security at December 31, 2020 is $9,000.

Step-by-step explanation:

Available-for-sale securities (AFS) can be described as equity or debt securities that are bought with the aim of reselling them before their date of maturity.

In accounting, available for sale securities are reported at fair value. As a result of this, any difference between amortized cost and fair value will transferred to other comprehensive income.

Therefore, the amount of credit loss that Metlock Company should report on this available for sale security at December 31, 2020 can be determined as follows:

Credit loss = Amortized cost - Fair value = $51,000 = 42,000 = $9,000

Therefore, the amount of credit loss that Metlock Company should report on this available for sale security at December 31, 2020 is $9,000.