A debt security is transferred from one category to another. Generally acceptable accounting principles require that for this particular reclassification (1) the security be transferred at fair value at the date of transfer, and (2) the unrealized gain or loss at the date of transfer currently carried as a separate component of stockholders' equity be amortized over the remaining life of the security. What type of transfer is being described?

Question

Quizplus · Accepted Answer

The transfer being described is a transfer from available-for-sale to held-to-maturity. This is because the security is being transferred to a category where it is intended to be held until maturity, rather than being held for trading purposes or for sale in the short-term. Additionally, the requirement to amortize the unrealized gain or loss over the remaining life of the security is a characteristic of the held-to-maturity category.

A Debt Security Is Transferred from One Category to Another