Harding Financial Services Company holds a large portfolio of debt and stock securities as an investment. The
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Bales suggests classifying the securities that have increased in value as trading securities in order to increase net income for the year. She wants to classify the securities that have decreased in value as long-term available-for-sale securities, so that the decreases in value will not affect 2014 net income.
Reeble disagrees. She recommends classifying the securities that have decreased in value as trading securities and those that have increased in value as long-term available-for-sale securities. Reeble argues that the company is having a good earnings year and that recognizing the losses now will help to smooth income for this year. Moreover, for future years, when the company may not be as profitable, the company will have built-in gains.
Instructions
(a) Will classifying the securities as Bales and Reeble suggest actually affect earnings as each says it will?
(b) Is there anything unethical in what Bales and Reeble propose? Who are the stakeholders affected by their proposals?
(c) Assume that Bales and Reeble properly classify the portfolio. At year-end, Bales proposes to sell the securities that will increase 2014 net income, and that Reeble proposes to sell the securities that will decrease 2014 net income. Is this unethical?
Stakeholders
A person, group or organization that has interest or concern in an organization. Stakeholders can affect or be affected by the organization's actions, objectives and policies. Some examples of key stakeholders are creditors, directors, employees,... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...
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Accounting Principles
ISBN: 9781118566671
11th Edition
Authors: Jerry Weygandt, Paul Kimmel, Donald Kieso
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