Question

A debt security is transferred from one category to another. Generally acceptable accounting principles require that for this particular reclassification (1) the security be transferred at fair value at the date of transfer, and (2) the unrealized gain or loss at the date of transfer currently carried as a separate component of stockholders' equity be amortized over the remaining life of the security. What type of transfer is being described?

1) Transfer from trading to available-for-sale
2) Transfer from available-for-sale to trading
3) Transfer from held-to-maturity to available-for-sale
4) Transfer from available-for-sale to held-to-maturity

Answer 1

The type of transfer being described is transfer from available-for-sale to held-to-maturity.

Step-by-step explanation:

The type of transfer being described is transfer from available-for-sale to held-to-maturity.

When a debt security is transferred from available-for-sale to held-to-maturity category, generally acceptable accounting principles require that:

1. The security be transferred at fair value at the date of transfer.
2. The unrealized gain or loss at the date of transfer, currently carried as a separate component of stockholders' equity, be amortized over the remaining life of the security.