Which of the following represents the method for recognizing unrealized holdings of trading debt securities?

The method for recognizing unrealized holdings of trading debt securities is to recognize them in net income. This means that any changes in the fair value of these trading securities are reflected in the income statement, impacting the company's reported earnings. This treatment aligns with the accounting principle that trading securities are meant to be actively bought and sold, with the intention of realizing profits or managing risk in the short term.

When the fair value of trading debt securities increases or decreases, these unrealized gains or losses are recognized immediately, leading to fluctuations in net income. This approach provides investors and stakeholders with a current view of the company's performance and financial position, as it captures the real-time valuation effects of market changes.

This treatment contrasts with other types of investments, such as available-for-sale securities, where unrealized gains or losses might be recognized in other comprehensive income instead, reflecting a different intention regarding the holding of these assets. This distinction underscores the nature of trading securities as actively managed investments, thus justifying their immediate recognition in net income.