Ask Joey ™ a Question

How are changes in fair value for equity securities recorded on the income statement?

Treatment varies depending on whether its classified as “trading” or “available-for-sale”. Additionally, you must determine whether the decline in fair value is temporary or other than temporary (i.e. permanent). Remember, to determine whether or not significant influence exists.

For trading securities, unrealized and realized losses are recorded in the income statement.

For available-for-sale securities, assuming change in fair value is temporary, then unrealized gains or losses recorded to OCI, which is part of stockholders’ equity on the balance sheet. Any realized gains or losses for AFS securities are recorded in the income statement.

You might also be interested in...

  • What is the difference between equity securities and debt securities?

    The fundamental difference is that when you purchase an equity security, you own part of the company. When you purchase a debt security, you do not have any ownership in the company. The reason someone would buy a debt security over an equity security is that if the company were to go bankrupt, debt holders […]