Final answer:
On December 31, 2013, Osgood Corporation's balance sheet would reflect the municipal bonds at a market value of $3,600,000 under the trading securities category, and the 2013 income statement would account for the decrease in value of $400,000 as a realized loss.
Step-by-step explanation:
Osgood Corporation initially purchased $4,000,000 worth of 10-year municipal bonds at face value in 2011. By December 31, 2013, the market value of these bonds had decreased to $3,600,000. The reclassification from held to maturity to trading securities indicates a shift in how these bonds are accounted for on the balance sheet.
The $400,000 decrease in value ($4,000,000 - $3,600,000) is recognized as a realized loss on the income statement for 2013. This loss affects the net income for the year. When reclassified as trading securities, these bonds are valued at their fair market value on the balance sheet date, which is $3,600,000 in this case.
The income statement would reflect the $400,000 decrease in value as a loss, impacting the overall profitability of Osgood Corporation for the year 2013.