Fair value of debt and equity securities portfolio of Band Co. is higher than its cost, inspite of the decrease in value of some securities. At year end, the financial vice president and the controller of the company are about to classify this securities portfolio for the first time. The vice president, who wants to increase net income for the year, proposes to classify the securities that have increased in value as trading. He also proposes to classify the equity securities that have decreased in value as available-for-sale and debt securities that have decreased in value as held-to-maturity. The controller, on the other hand, proposes to classify the securities that have decreased in value as trading . He further propeses to classify the equity securities that have increased in value as available-for-sale and the debt securities that have increased in value as held-to-maturity. Based on the fact that the company has been profitable this year, he states that recognizing losses will smooth out earnings. Hence, the company will be better off in future, at times when profitability decreases.Required:Discuss how you assess both of these proposals.Discuss the ethical issues related with these proposals and their effect on stakeholders.
Fair value of debt and equity securities portfolio of Band Co. is higher than its cost, inspite of the decrease in value of some securities. At year end, the financial vice president and the controller of the company are about to classify this securities portfolio for the first time. The vice president, who wants to increase net income for the year, proposes to classify the securities that have increased in value as trading. He also proposes to classify the equity securities that have decreased in value as available-for-sale and debt securities that have decreased in value as held-to-maturity. The controller, on the other hand, proposes to classify the securities that have decreased in value as trading . He further propeses to classify the equity securities that have increased in value as available-for-sale and the debt securities that have increased in value as held-to-maturity. Based on the fact that the company has been profitable this year, he states that recognizing losses will smooth out earnings. Hence, the company will be better off in future, at times when profitability decreases.Required:Discuss how you assess both of these proposals.Discuss the ethical issues related with these proposals and their effect on stakeholders.
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter15: Financial Statement Analysis
Section: Chapter Questions
Problem 63P: Mike Sanders is considering the purchase of Kepler Company, a firm specializing in the manufacture...
Related questions
Question
Fair value of debt and equity securities portfolio of Band Co. is higher than its cost, inspite of the decrease in value of some securities. At year end, the financial vice president and the controller of the company are about to classify this securities portfolio for the first time. The vice president, who wants to increase net income for the year, proposes to classify the securities that have increased in value as trading. He also proposes to classify the equity securities that have decreased in value as available-for-sale and debt securities that have decreased in value as held-to-maturity. The controller, on the other hand, proposes to classify the securities that have decreased in value as trading . He further propeses to classify the equity securities that have increased in value as available-for-sale and the debt securities that have increased in value as held-to-maturity. Based on the fact that the company has been profitable this year, he states that recognizing losses will smooth out earnings. Hence, the company will be better off in future, at times when profitability decreases.Required:Discuss how you assess both of these proposals.Discuss the ethical issues related with these proposals and their effect on stakeholders.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Century 21 Accounting Multicolumn Journal
Accounting
ISBN:
9781337679503
Author:
Gilbertson
Publisher:
Cengage
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Century 21 Accounting Multicolumn Journal
Accounting
ISBN:
9781337679503
Author:
Gilbertson
Publisher:
Cengage
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Financial Accounting
Accounting
ISBN:
9781337272124
Author:
Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:
Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning