Will classifying the portfolio as each proposes actually

Assignment Help Financial Management

Reference no: EM131878493

ETHICS (Fair Value) Addison Manufacturing holds a large portfolio of debt securities as an investment. The fair value of the portfolio is greater than its original cost, even though some debt securities have decreased in value. Sam Beresford, the financial vice president, and Angie Nielson, the controller, are near year-end in the process of classifying for the first time this securities portfolio in accordance with GAAP. Beresford wants to classify those securities that have increased in value during the period as trading securities in order to increase net income this year. He wants to classify all the securities that have decreased in value as held-to-maturity. Nielson disagrees. She wants to classify those debt securities that have decreased in value as trading securities and those that have increased in value as held-to-maturity. She contends that the company is having a good earnings year and that recognizing the losses will help to smooth the income this year. As a result, the company will have built-in gains for future periods when the company may not be as profitable.

Instructions

Answer all of the following questions USING PARAGRAPH FORM.

(a) Will classifying the portfolio as each proposes actually have the effect on earnings that each says it will?

(b) Is there anything unethical in what each of them proposes? Who are the stakeholders affected by their proposals?

(c) Assume that Beresford and Nielson properly classify the entire portfolio into trading, available-for-sale, and held-tomaturity categories. But then each proposes to sell just before year-end the securities with gains or with losses, as the case may be, to accomplish their effect on earnings. Is this unethical?

Reference no: EM131878493

Questions Cloud

Calculate the PW at MARR : A company is considering constructing a plant to manufacture a proposed new product. Calculate the PW at MARR.

Calculate the cost of common stock-after-tax cost of debt : Calculate the? after-tax cost of debt. Calculate the cost of preferred stock. Calculate the cost of common stock.

Making an interval estimate for the population mean : What assumption regarding the population is necessary for making an interval estimate for the population mean?

Principal value of bond is most commonly : In the U.S. the principal value of a bond is most commonly:

Will classifying the portfolio as each proposes actually : Will classifying the portfolio as each proposes actually have the effect on earnings that each says it will?

What policies are in place to discourage immigration : What policies are in place to discourage immigration into the U.S.? What do you think of these policies?

Worth of debt with flotation costs equal : A firm raises capital by selling ?$35,000 worth of debt with flotation costs equal to 1?% of its par value.

Added to a portfolio comprised of three stocks : If a large number of diverse securities are added to a portfolio comprised of three stocks, then the:

Current time corresponding to the initial node of the tree : calculate the fair price for the option at current time corresponding to the initial node of the tree

User Account

All Pages