Nichols Corporation purchased $170,000 of Holly Inc. 8% bonds at par with the intent and...
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Nichols Corporation purchased $170,000 of Holly Inc. 8% bonds at par with the intent and ability to hold the bonds until they matured in 2022, so Nichols classifies its investment as held to maturity. Unfortunately, a combination of problems at Holly and in the debt market caused the fair value of the Holly investment to decline to $136,000 during 2018. Nichols calculates that, of the $34,000 decrease in fair value, $13,000 of it relates to credit losses and $21,000 relates to noncredit losses. Assume that Nichols concludes that the Holly bonds are other-than-temporarily impaired because Nichols calculates that the bonds have incurred credit losses. Before-tax net income for 2018 will be reduced by:
Multiple Choice
$34,000.
$13,000.
$21,000.
$0.
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