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What happens if the unrealized loss for an AFS investment goes from temporary to other than temporary?

When an unrealized loss is considered temporary for an AFS security, the unrealized loss is recorded to OCI.

However, if the AFS investment has no change in value but management believes the loss is now other than temporary (i.e. permanent), then the unrealized loss should be reclassed to a realized loss. This means that the unrealized loss is removed from OCI and recorded as a realize loss in the income statement.

The journal entries below illustrate how a $10,000 temporary loss in Year 1 would be reclassified to an “other than temporary” loss in Year 2.

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