Question

Indicate how unrealized holding gains and losses should be reported for debt investments classified as trading, available-for-sale, and held-to-maturity.

Short answer

Unrealized gains of the trading debt investment are added to the net income, added into comprehensive income, and unrealized profits of the held-to-maturity are not recognized.

Step-by-step solution

Definition of unrealized gain or loss

Unrealized gain or loss means the increase or decrease in the value of the asset of an investor without the selling asset.

Reporting of unrealized gain or loss

Any unrealized gain or loss generated by the trading of debt securities is reported into the year's net income. If there is an unrealized gain, it is added to net income. If there is any loss, it is subtracted from the net income.

The other comprehensive income reports any unrealized gain or loss in the available-for-sale investment. It is also shown under the head of shareholder’s equity as a separate item.

Any unrealized gain or loss in the securities held for maturity does not recognize under any head.