A reclassification adjustment is necessary when a company reports realized gains/losses as part of net income but also shows unrealized gains/losses as part of other comprehensive income.

Question

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A reclassification adjustment is needed to make sure that the realized gains/losses are not being double-counted in both net income and other comprehensive income. The adjustment moves the amount from other comprehensive income to net income or vice versa to properly reflect the impact on the company's financial position.

A Reclassification Adjustment Is Necessary When a Company Reports Realized