Asked by Lungile Shange on May 27, 2024
Verified
Discuss the similarities and differences in reporting trading securities, available-for-sale securities, and held-to-maturity securities.
Trading Securities
Trading securities are investments in financial instruments that a company intends to sell in the short term with the aim of generating profit from short-term price fluctuations.
Available-For-Sale Securities
Available-for-sale securities are financial assets that a company intends to sell but is not obligated to do so, classified as neither held-to-maturity nor trading securities.
Held-To-Maturity Securities
Debt securities that a company intends and is able to hold until they mature.
- Understand the differences between trading securities, available-for-sale securities, and held-to-maturity securities.
Verified Answer
CL
Christopher LopezMay 31, 2024
Final Answer :
Both trading securities and available-for-sale securities are reported at fair value on the balance sheet date. Held-to-maturity securities are reported at amortized cost.
Unrealized gains and losses on trading securities are reported on the income statement as part of other revenue or loss. Unrealized gains and losses on available-for-sale securities are reported in the stockholders' equity section of the balance sheet. Unrealized gains and losses are not calculated or reported on held-to-maturity securities.
Trading securities are always reported as current assets. Available-for-sale and held-to-maturity securities may be reported as current or noncurrent assets. The classification for available-for-sale securities depends on management intent. The classification for held-to-maturity securities depends upon the remaining time to maturity.
Unrealized gains and losses on trading securities are reported on the income statement as part of other revenue or loss. Unrealized gains and losses on available-for-sale securities are reported in the stockholders' equity section of the balance sheet. Unrealized gains and losses are not calculated or reported on held-to-maturity securities.
Trading securities are always reported as current assets. Available-for-sale and held-to-maturity securities may be reported as current or noncurrent assets. The classification for available-for-sale securities depends on management intent. The classification for held-to-maturity securities depends upon the remaining time to maturity.
Learning Objectives
- Understand the differences between trading securities, available-for-sale securities, and held-to-maturity securities.