Section 2: 30–40%2E1
Financial Assets at Fair Value
The AFS vs. trading distinction is the most tested classification question in this area. Trading securities: unrealized gains/losses go through net income. AFS: unrealized gains/losses go through OCI. The AICPA's trap: they'll describe a company 'intending to sell within 3 months' and ask for the classification — that's trading, not AFS. Also know that transfers between categories trigger immediate recognition.
What AICPA Wants You to Know
- 1Classify debt securities as trading or available-for-sale and apply correct accounting
- 2Explain how ASU 2016-01 changed the accounting for equity securities
- 3Record purchase, fair value adjustments, and sale of trading and AFS securities
- 4Distinguish unrealized gains/losses from realized gains/losses
- 5Apply reclassification adjustments when AFS securities are sold