Final answer:
Unrealized holding gains and losses associated with debt investments classified as 'available for sale' are recorded in other comprehensive income and not in the income statement. These gains or losses are the changes in fair value of the investments that have not yet been sold.
Step-by-step explanation:
Unrealized Holding Gains and Losses Associated with Debt Investments
When debt investments are classified as 'available for sale', any unrealized holding gains or losses are recorded in other comprehensive income rather than in the income statement. Unrealized holding gains or losses are the changes in the fair value of the investments that have not yet been sold. These gains or losses are not considered realized until the investments are sold.
For example, let's say a company holds a bond as an available-for-sale investment. If the fair value of the bond increases, the company will record an unrealized holding gain, which is a positive change in value. However, if the fair value of the bond decreases, the company will record an unrealized holding loss, which is a negative change in value. These gains or losses are reported as a separate line item on the balance sheet.