Final answer:
Debt securities such as trading, available-for-sale, and held-to-maturity securities are reported on the balance sheet at their fair value. Trading securities have unrealized gains or losses reported in net income, available-for-sale securities have unrealized gains or losses reported in stockholders' equity, and held-to-maturity securities do not recognize unrealized gains or losses.
Step-by-step explanation:
Trading, available-for-sale, and held-to-maturity debt securities should be reported on the balance sheet at their fair value. The fair value is the price that would be received to sell the securities in an orderly transaction between market participants at the measurement date.
For trading securities, any unrealized gains or losses should be reported as part of net income. These securities are actively bought and sold for short-term profit. For available-for-sale securities, any unrealized gains or losses should be reported as a separate component of stockholders' equity. These securities are not actively bought and sold, and any changes in fair value are not recognized as part of net income until they are sold.
For held-to-maturity securities, any unrealized gains or losses should not be recognized. These securities are intended to be held until maturity, and any changes in fair value are not recognized as part of net income.