Which security classification records unrealized gains and losses on the income statement?

Which security classification records unrealized gains and losses on the income statement?

• A. Trading
• B. Available for Sale (AFS)
• C. Held-to-Maturity (HTM)
• D. All of the above

Answer: (A)

Trading securities are carried at fair value with changes in that fair value reported in net income. These securities are intended for short-term trading, so their unrealized gains and losses flow directly through the income statement as they occur. In contrast, available-for-sale securities have unrealized gains and losses recorded in other comprehensive income, not in net income, until they are realized; held-to-maturity securities are reported at amortized cost, with unrealized changes generally not recognized in either net income or OCI. So the only classification that records unrealized gains and losses on the income statement is trading securities.

Trading securities are carried at fair value with changes in that fair value reported in net income. These securities are intended for short-term trading, so their unrealized gains and losses flow directly through the income statement as they occur. In contrast, available-for-sale securities have unrealized gains and losses recorded in other comprehensive income, not in net income, until they are realized; held-to-maturity securities are reported at amortized cost, with unrealized changes generally not recognized in either net income or OCI. So the only classification that records unrealized gains and losses on the income statement is trading securities.