Let us consider the following example:
“On 1 January 2008, Baxter Inc. invested £300,000 in Cartel Co. debt securities (with a 6 percent stated rate on par value, payable each 31 December)”. The effective interest rate was 4.5%. At the year of end of the year the fair value of the securities is £350,000. It records 53,000 unrealized gains and 13500 interest income on IS. For the next year how much interest income should it classify- 13,365 (according to the amortization calculation) or 350,000*0.045 ???