Final answer:
Transferring securities from available-for-sale to trading affects stockholders' equity by moving accumulated other comprehensive income or loss to the income statement, where unrealized gains or losses are recognized immediately, potentially resulting in more volatile earnings.
Step-by-step explanation:
When securities are transferred from an available-for-sale category to the trading category, the transaction has a direct impact on stockholders' equity and income. Securities in the available-for-sale category are recorded at fair value, with unrealized gains and losses reported in other comprehensive income, which is a component of stockholders' equity. Upon transfer to the trading category, these unrealized gains and losses must be moved from stockholders' equity to the income statement, because the trading category requires that changes in fair value be recognized in earnings immediately.
This transfer affects stockholders' equity by removing the accumulated other comprehensive income or loss related to the transferred securities and affecting net income through the recognition of these previously unrealized gains or losses. The reclassification could result in a more volatile earnings report if significant unrealized gains or losses exist, as the trading securities are subject to fluctuations in market value that are now recognized in income.