What type of holding does not recognize unrealized holdings?

The correct answer is that equity investments of less than 20% do not recognize unrealized holdings. This is primarily due to the accounting method applied to such investments. When a company holds less than 20% of another company’s equity, it is generally classified as a passive investment. Under the cost method, these investments are recorded at their original cost and only recognized on the income statement when actual gains or losses are realized through sale or disposal. Unrealized gains or losses—those that have occurred but have not yet been sold—are not recognized in the financial statements.

In contrast, trading securities are reported at fair value, with unrealized gains and losses reflected in the income statement, affecting net income. Debt securities are also reported based on their classification, which can involve recognizing unrealized holdings depending on whether they are held to maturity, available for sale, or trading. Equity investments over 50% typically involve significant influence or control, requiring the use of equity method accounting where the investor recognizes their share of the investee's income, but also does not adjust for unrealized gains or losses unless there's a sale. Thus, the treatment of equity investments of less than 20% distinctly keeps them from recognizing unrealized holdings.