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What is the net effect of the items on smoke net income

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Reference no: EM132740903

The following pertains to Smoke, Inc.'s investment in debt securities:

  • On December 31, Year 3, Smoke reclassified a security acquired during the year for $70,000. It had a $50,000 fair value when it was reclassified from trading to available-for-sale.
  • An available-for-sale security costing $75,000, written down to $30,000 in Year 2 had a $60,000 fair value on December 31, Year 3. The changes in the fair value of the security are not due to credit losses.

Problem 1: What is the net effect of the above items on Smoke's net income for the year ended December 31, Year 3?

A. No effect.

B. $10,000 increase.

C. $20,000 decrease.

D. $30,000 increase.

Reference no: EM132740903

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