Rushia Company has a non-trading investment in the 10%, 10-year bonds of Pear Company. The investment’s carrying value is $3,200,000 at December 31, 2020. On January 9, 2021, Rushia learns that Pear Company has lost its primary manufacturing facility in an uninsured fire. As a result, Rushia determines that the investment is impaired and now has a fair value of $2,300,000. In June, 2022, Pear Company has succeeded in rebuilding its manufacturing facility, and its prospects have improved as a result.
Rushia Company has a non-trading investment in the 10%, 10-year bonds of Pear Company. The investment’s carrying value is $3,200,000 at December 31, 2020. On January 9, 2021, Rushia learns that Pear Company has lost its primary manufacturing facility in an uninsured fire. As a result, Rushia determines that the investment is impaired and now has a fair value of $2,300,000. In June, 2022, Pear Company has succeeded in rebuilding its manufacturing facility, and its prospects have improved as a result.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Rushia Company has a non-trading investment in the 10%, 10-year bonds of Pear Company. The investment’s carrying value is $3,200,000 at December 31, 2020. On January 9, 2021, Rushia learns that Pear Company has lost its primary manufacturing facility in an uninsured fire. As a result, Rushia determines that the investment is impaired and now has a fair value of $2,300,000. In June, 2022, Pear Company has succeeded in rebuilding its manufacturing facility, and its prospects have improved as a result.
If Rushia Company determines that the fair value of the investment is now $3,900,000 and is using GAAP for its external financial reporting, which of the following is true?
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