176 when a security is reclassified between two

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Unformatted text preview: ach is used for all equity investments. (b) Under the FV-NI approach, an increase in fair value produces an unrealized gain that is included in earnings during the period in which it occurs. 176. When a security is reclassified between two categories, the security is transferred at fair value on the date of transfer. Any unrealized holding gain or loss at reclassification should be accounted for in a manner consistent with the classification into which the security is being transferred. Reclassifications are quite unusual, so when they occur, footnote disclosures should describe the circumstances that resulted in the transfer. 177. When securities are actively managed, as trading securities are, with the express intent of profiting from short-term price changes, the gains and losses that result from holding securities during market price changes are appropriate measures of success or lack of success in that endeavor. On the other hand, securities available for sale are held for reasons other than profiting from short-term price changes so holding gains and losses are appropriately included in income only when realized upon sale of the investment. Also, unrealized gains and losses prior to sale may cancel one another out. 178. As indicated in the disclosure note, Maytag held investments in securities of TurboChef Technologies. These may have been treated as trading securities, in which case reductions in their values would have been recorded as a loss against income in 20X3. Alternatively, this loss could result from permanent impairments in value, even if these were not treated by Maytag as trading securities. In addition, Maytag had investments in privately held Internet-related companies. The portion of the 20X3 and 20X2 losses on securities related to these investments seem to have resulted from permanent impairments. Note that the note disclosure indicates these were noncash losses, thereby ruling out these losses having occurred as a result of Maytag selling the securities at a loss. 179. GAAP regarding fair value measurement distinguishes among three levels of inputs for fair value determination, where level 1 includes readily observable fair values (for example, from a securities exchange), level 2 inputs includes...
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