Under US generally accepted accounting principles (GAAP), investment securities should be classified into categories based on the intent of the purchaser. Which of the following is one of the acceptable classifications?I. Available for saleII. Mark to marketIII. TradingIV. Held to maturity

CPA FAR marketable securities and investments are classified by management intent into Trading (fair value, earnings), Available-for-Sale (AFS) (fair value, OCI), or Held-to-Maturity (HTM) (amortized cost).  Equity investments often use the fair value method or equity method (20-50% ownership), with unrealized gains/losses for equity securities usually affecting earnings.  Marketable Debt & Equity Securities (ASC 320 & 321) Investments are measured at fair value on the balance sheet, with changes in value reported differently based on classification:  Trading Securities: Bought for... Show more

CPA FAR marketable securities and investments are classified by management intent into Trading (fair value, earnings), Available-for-Sale (AFS) (fair value, OCI), or Held-to-Maturity (HTM) (amortized cost). 
Equity investments often use the fair value method or equity method (20-50% ownership), with unrealized gains/losses for equity securities usually affecting earnings. 

Marketable Debt & Equity Securities (ASC 320 & 321)
Investments are measured at fair value on the balance sheet, with changes in value reported differently based on classification: 

Trading Securities: Bought for near-term sale. Unrealized gains/losses reported in net income (earnings).
Available-for-Sale (AFS): Not trading or HTM. Unrealized gains/losses reported in Other Comprehensive Income (OCI) (net of tax).
Held-to-Maturity (HTM): Debt securities only; company has positive intent/ability to hold until maturity. Reported at amortized cost, not fair value. 

Investment Valuation & Income Effects
Unrealized Gains/Losses: Recognized in income for Trading; in OCI for AFS.
Sale of Securities: Realized gains/losses go to income statement, regardless of classification.
Reclassifications: Generally recorded at fair value, with treatment varying based on the direction of transfer. 

Equity Method Investments (ASC 323)
Used for significant influence, typically 20-50% ownership. 

Accounting: Recorded at cost, increased by investor's share of investee earnings, decreased by dividends received.
Income Recognition: Investor records proportionate share of investee net income/loss as "Income from Investment". 

Key FAR Exam Distinctions
Equity Securities: Generally measured at fair value through earnings, regardless of intent, unless they qualify for the equity method or a special exception.
Impairment: Permanent declines in AFS or HTM securities are recognized in earnings.
Cash Flow: Trading securities are often operating activities; AFS/HTM are investing activities.
Memory Aid: Trading = IDEA (Income statement - Dividend/Equity/All-other), AFS = PUFE (OCI - Pension/Unrealized-AFS/Foreign-currency/Effective-portion).

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