Final answer:
Debt securities classified as Available-for-Sale on a balance sheet are reported at their fair value. Unrealized gains and losses on these securities are included in other comprehensive income until the securities are sold.
Step-by-step explanation:
On a balance sheet, debt securities classified as Available-for-Sale (AFS) must be reported at their fair value. AFS securities are a type of investment in debt or equity instruments that a company has the intent to hold for an indefinite period of time but may sell in response to needs for liquidity or changes in interest rates, among other reasons. The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Unrealized gains and losses on AFS securities are not reported on the income statement; instead, they are reported as other comprehensive income (OCI) until the security is sold, at which time the gains or losses are reclassified from OCI to the income statement. This is different from trading securities, which are reported at fair value, but with unrealized gains and losses included in the income statement.