Union Planters Union Planters is a Tennessee bank holding company (that is, a corporation that owns banks).
Question:
Union Planters Union Planters is a Tennessee bank holding company (that is, a corporation that owns banks). (Union Planters is now part of Regions Bank.) Union Planters manages $32 billion in assets, the largest of which is its loan portfolio of $19 billion. In addition to its loan portfolio, however, like other banks it has signifi- cant debt investments. The nature of these investments varies from short-term in nature to long-term in nature. As a consequence, consistent with the requirements of accounting rules, Union Planters reports its investments in two different categories—trading and available-for-sale. The following facts were found in a recent Union Planters’ annual report. Instructions
(all dollars in millions) Amortized cost Gross Unrealized gain Gross Unrealized losses Fair Value
Trading account assets $ 275 ----- -------- $ 275
Securities available for sale 8,209 $108 $15 8302
Net income 224
Net securities gains (losses) (9)
(b) How must Union Planters account for its investments in each of the two categories?
c. In what ways does classifying investments into two diff erent categories assist investors in evaluating the profi tability of a company like Union Planters? d. Suppose that the management of Union Planters was not happy with its net income for the year. What step could it have taken with its investment portfolio that would have defi nitely increased reported profi t? How much could it have increased reported profi t? Why do you suppose it chose not to do this?