Could someone explain to me the difference between these two? Thanks
held for trading securities are designated at FV. available for sale are also at FV but their change in FV does not go to income statement.
You mean the unrealized gains/losses in fair value for an available-for-sale security don’t go to the income statement, yes? It says the unrealized gains/losses go to equity, what does that mean exactly? They show up as other comprehensive income? Then once an available-for-sale security is sold the realized gain or loss goes into the income statement. Do I have this right?
Kant, I think you have it right, except only the net realized gain will run through the income statement when the asset is sold, since the unrealized gains are already included in equity.
Ok, so here’s what I’ve got. Held-for-trading security = designated at FV. Available-for-Sale securities are placed in the balance sheet at fair value. The unrealized gains/losses go into other comprehensive income, interest and dividend income go to the income statement. Once an available-for-sale security is sold, the net realized gain or loss will be taken out of other comprehensive income and moved to the income statement. Correct?
I think you’ve got it. Think of Other Comprehensive Income (OCI) as a “holding/waiting place” for the unrealized gains/losses to stay, then when you sell the bond you realize those gains/losses on the income statement, like you said.