Is this reclassification within the rules

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Question - Assume that you are the CFO of a large manufacturing company. As CFO, you are responsible for investing excess cash in marketable securities and then handling the accounting of those securities. Your company has a policy of classifying all securities as being available-for-sale. At the end of the year, preliminary financial results indicate that your firm will be slightly below targeted net income. The board of directors has given you the task of determining how income might be increased without going outside the rules.

You determine that one method of increasing net income would be to reclassify all available-for-sale securities that have experienced an increase in fair value as if they were purchased as trading securities.

1. Would the reclassification achieve the desired results in your opinion?

2. Is this reclassification within the rules?

3. Is this reclassification consistent with the intent of FASB Statement 115?

4. If you were the company's external auditor, what questions might you have regarding this reclassification?

Reference no: EM133040376

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