Question

Which statement is true about reporting unrealized gains and losses from available-for-sale (AFS) securities? a)Unrealized gains and losses from AFS securities should be reported as a component of income from continuing operations if the fair a. value option to report these securities is elected. b)Unrealized gains and losses from AFS securities should not be reported, since gains and losses from available-for-sale securities are b.reported only upon sale. b)Unrealized gains and losses from AFS securities should be reported as a separate component of other comprehensive income if the c. fair value option to report these securities is elected. c)Unrealized gains and losses from AFS securities should be reported as a component of income from continuing operations if the fair d. value option to report these securities is not elected. d)Unrealized gains and losses from AFS securities should reverse net income in the statement of cash flows. .

Answer 1

Unrealized gains and losses from AFS securities are typically reported in other comprehensive income and are not included in net income until the security is sold.

Step-by-step explanation:

The true statement about reporting unrealized gains and losses from available-for-sale (AFS) securities is that they should be reported as a separate component of other comprehensive income, except when the fair value option is elected under which they are reported in earnings. This means that, typically, unrealized gains and losses are not reported in the income statement but are instead included in other comprehensive income until the security is sold, at which time they are reclassified and included in net income, affecting the income from continuing operations. Moreover, when preparing the statement of cash flows, the unrealized gains or losses do not reverse net income because they are non-cash adjustments that were not included in net income to begin with.