If Dinsburry Company concluded that an investment originally classified as a tra

Question

If Dinsburry Company concluded that an investment originally classified as a trading security would now more appropriately be classified as held to maturity, Dinsburry would

A. Not reclassify the investment, as original classifications are irrevocable
B. Re classify the investment as held to maturity and treat the fair value as of the date of reclassification as the investments amortize cost basis for future amortization
C. Re classify the investment as held to maturity, but there would be no income effect
D. Re classify the investment as held to maturity and immediately recognized in net income all unrealized gains and losses as the reclassification date

Explanation / Answer

Ans:

Option B is correct.

Trading security can be reclassified as held to maturity, if the company intends to hold the security to it's maturity. In this case the company has to record the fair value at the time it is reclassified in the balance sheet.

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