Question

Transfers between categories result in companies omitting recognition of fair value in the year of the transfer. Are accounted for at fair value for all transfers. Are considered unrealized and unrecognized if transferred out of held-to-maturity into trading. Will always result in an impact on net income?

1) result in companies omitting recognition of fair value in the year of the transfer.
2) are accounted for at fair value for all transfers.
3) are considered unrealized and unrecognized if transferred out of held-to-maturity into trading.
4) will always result in an impact on net income.

Answer 1

Transfers between categories are accounting transactions where financial instruments are moved from one category to another. When a financial instrument is transferred out of the held-to-maturity category into the trading category, any unrealized gains or losses associated with the instrument are not recognized or recorded in the income statement. Instead, they are considered unrealized and unrecognized until the instrument is actually sold.

Step-by-step explanation:

The statement that best represents the question is: 3) Are considered unrealized and unrecognized if transferred out of held-to-maturity into trading.

Transfers between categories are accounting transactions where financial instruments are moved from one category to another. When a financial instrument is transferred out of the held-to-maturity category into the trading category, any unrealized gains or losses associated with the instrument are not recognized or recorded in the income statement. Instead, they are considered unrealized and unrecognized until the instrument is actually sold.

This means that if a company transfers an instrument out of held-to-maturity into trading, there will be no impact on net income at the time of the transfer. Any gains or losses will only be recognized when the instrument is sold.