Nuance question on the correct answer. Why would I need to write down the cost basis for an AFS - wouldn't I already have done this by the fact that I have been adjusting my unrealized losses to OCI (dr.) and to FV of security (cr.) even as an AFS? Just a thought...

Question CPA-05463

Beach Co. determined that the decline in the fair value (FV) of an investment was below the amortized cost and other than temporary. The investment was classified as available-for-sale on Beach's books. The controller would properly record the decrease in FV under U.S. GAAP by including it in which of the following?

a. Other comprehensive income section of the income statement only.
b. Earnings section of the income statement and writing down the cost basis to FV.
c. Extraordinary items section of the income statement, net of tax, and writing down the cost basis to FV.
d. Other comprehensive income section of the income statement, and writing down the cost basis to FV.

Choice "b" is correct. When an available-for-sale security is determined to be impaired because of an other than

temporary decline in fair value below cost, the asset must be written down to the lower fair value by recording a

loss that is recognized on the income statement