Large U.S. corporations, especially banks, tend to hold larger portfolios of securities they classify as available-for-sale than of securities they classify as trading. On its 2008 balance sheet, for example, Bank of New York reported available-for-sale securities of $32.1 billion and trading securities of only $11.1 billion. Some have commented that classifying investments as available-for-sale gives management greater ability to manage reported earnings from one year to the next.
REQUIRED:
Explain how the methods used account for investments classified as available-for-sale (compared to the methods used to account for trading securities) could give management greater ability to manage reported earnings.