Final answer:
Transfers between categories in accounting involve recording financial instruments at fair value, but may not always impact net income.
Step-by-step explanation:
Transfers between categories are a concept in accounting, specifically in regard to the classification of financial instruments. In general, transfers between categories involving financial instruments are accounted for at fair value. This means that the fair value of the instrument at the time of the transfer is recorded on the balance sheet. So, statement 1 is correct.
However, statement 2 is not entirely accurate. When a financial instrument is transferred out of the held-to-maturity category into the trading category, it is considered a realized and recognized transfer. The fair value of the instrument is recognized at the time of the transfer, and any unrealized gains or losses are also recognized.
Statement 3 is incorrect. Transfers between categories may or may not result in an impact on net income. It depends on the specific circumstances of the transfer and the accounting treatment applied.
Statement 4 is also incorrect. Transfers between categories do not result in companies omitting recognition of fair value. Fair value is recognized for all transfers