Question

Reporting an investment at its fair value means adjusting its carrying amount for changes in fair value after its acquisition (or since the last reporting date if it was held at that time). Such changes are called unrealized holding gains and losses because they haven't yet been realized through the sale of security. If the security is classified as available-for-sale, how are unrealized holding gains and losses typically reported?

Please answer the question in a minimum of 1 paragraph and cite all sources. Thank you.

Answer 1

For trading securities (TS) Unrealized gains or losses are included in net income. Using a valuation allowance account to increase or decrease the carrying value of the investment.

The way unrealized holding gains and losses are reported in the financial statements depends on whether the investments are classified as "securities available-for sale" or as "trading securities."

Securities available-for-sale are reported at fair value, and resulting holding gains and losses are not included in the determination of income for the period. Rather, they are reported as a separate component of shareholders' equity, as part of other comprehensive income (OCI) (Available-for-sale securities for which the investor has chosen the fair value option are reclassified as trading securities.)