CFA Practice Question

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CFA Practice Question

Unrealized holding gains and losses for securities to be held-to-maturity are ______

A. reported as a separate component of the shareholders' equity section of the balance sheet.
B. included in the determination of income from operations in the period of the change.
C. neither reported in the income statement nor on the balance sheet.
Correct Answer: C

The investment is reported at amortized cost. No unrealized holding gains and losses are reported.

User Contributed Comments 10

User Comment
danlan2 A is wrong, it is not a seperate component of the equity section.
chamad As it's unrecognised, there is no need for report...
cfairs Unrecognized gains/losses from available-to-sale securities are recorded as extraordinary items

Unrecognized gains/losses from trading securities are recorded against net income of income statement

Unrecognized gains/losses from held-to-maturity securities are not reported either in income statement or balance sheet
vi2009 Premium paid or discount taken from Par value. These are amortized. I thought B was that we subtract or add to the interest income any of these premiums / discount. Though they are never referred to as unrealized gains / losses.
YOUCANDOIT nice summary cfairs!
rocyang but the gain/loss when realized should go somewhere, comprehensive income I suppose?
Nando1 cfairs, your first statement is incorrect. It goes into comprehensive income not extraordinary items.
johntan1979 To be more precise "Other Comprehensive Income".
Shaan23 I dont think Unrealized gains from held to maturity goes to OCI. I dont know where it goes but when reading OCI it only mentioned unrealized gains/losses from AFS and derivative contract
davidt876 Shaan, when you price at cost there "can't" be unrealised gains/losses - only realised gains/losses in the form of amortisation or impairment.

held-to-maturity is only an option for debt that will be held until maturity. at maturity you are 'guaranteed' to be repaid the par value. given that logic, the market value of the debt over the time its held is immaterial, because you're not going to sell the bond... you're going to wait to receive par.

and if it becomes evident that the debt issuer is unlikely to be able to pay back the full par, then you realise an impairment at that point
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