Detailed Answer
(a) Jill would recognize the unrealized loss on trading
securities in the income statement. On June 30, year 2, when the
securities were classified as held-to-maturity, Jill elected the fair
value option for reporting the investment. Therefore, any unrealized
gain or loss on the held-to-maturity securities would be
reported in earnings for the period. An unrealized gain or a temporary
loss on available-for-sale securities would be reported in
other comprehensive income only if the fair value option were
not elected. Held-to-maturity securities would be valued at
amortized cost if the fair value option of reporting were not
elected. Therefore, answers (b), (c), and (d) are incorrect because
Jill elects the fair value option on the held-to-maturity securities.