Sun Corp. had investments in marketable debt securities
costing $650,000 that were classified as available-for-sale. On
June 30, year 2, Sun decided to hold the investments to maturity
and accordingly reclassified them to the held-to-maturity category
on that date. The investments’ fair value was $575,000 at
December 31, year 1, $530,000 at June 30, year 2, and $490,000
at December 31, year 2. Sun does not elect the fair value option
to account for these investments.
What amount should Sun report as net unrealized loss on
marketable debt securities in its year 2 statement of stockholders’
equity?

(d) When a security is transferred to held-to-maturity
from available-for-sale the unrealized holding gain or loss continues
to be reported as a separate component of stockholders’ equity.
Held-to-maturity securities are carried at amortized cost,
and any unrealized holding gains or losses are not reported.
Thus, the balance in the “accumulated other comprehensive
income” in stockholders’ equity on the year 2 statement of stockholders’
equity would be $120,000 ($75,000 amount reported at
12/31/Y1 plus the $45,000 amount reported at June 30, year 2).
The $120,000 will be amortized over the remaining life of the
security as an adjustment to yield. The additional decline in
value from 6/30/Y2 to 12/31/Y2 would not be reported, as heldto-
maturity securities do not report unrealized losses.