Question

Correctly match the account balances related to AFS securities with the correct financial statement presentation

Answer 1

Answer:

Available-for-Sale Securities (AFS) are security instruments of another company that a company buys intending to sell before it matures or in the case of no maturity, the company intends to hold it for a while.

1. Other Comprehensive Income - Current period holding gains or losses

Available for Sale securities will see their values change as time goes on. The changes in their value have to be reflected in the books but because no money is actually being accrued or lost, this cannot be reflected in the Income statement. The various gains or losses in the current period will be recorded in Other Comprehensive Income.

2. Net Income - Realized gains and losses from the sale of AFS securities

When the AFS is actually sold, the gains or losses accrued will be sent to the Income statement as actual cash has now been accrued from its sale.

3.  Accumulated Other Comprehensive Income - Net fair value adjustments to date - net holding gains and losses to date.

While the various gains or losses in the current period will be recorded in Other Comprehensive Income, the accumulated gains or losses over the entire periods the security has been held is reported in the Accumulated Other Comprehensive Income which falls under the Equity section of the Balance sheet