Question

Tara Enterprises has numerous investments in debt and equity securities. The controller, James Cameron is preparing its year-end financial statements and is in the process of classifying for the first time the securities in the portfolio.

The poor economy in the past year has caused the portfolio's overall fair value to substantially decline; however, some securities have increased in value and others have decreased. Cameron earns a bonus each year, which is computed as a percent of net income.

Cameron presents a schedule classifying the securities for the COO's review. In reviewing the schedule the COO notices that the securities that have increased in value have been classified as trading securities while the securities that have decreased in value are classified as long-term available-for-sale securities.

1. Who might be affected by the suggested classification?
2. Will the suggested classification affect Cameron's bonus? Explain.
3. In your opinion, is the suggested classification ethical? Explain.

Answer 1

Pace Equation Symbol Text Box Quick WordArt Drop Parts Number Object Answer Trading securities are those securities that are stayed within a coinpany's portfolio with an intention to pilch them in the short term to win a benefit. These securities are recorded at their fair value in balance sheet. Any increase in the fair value of these securities is recorded as an addition in the income statement So Cameron has put the securities showing an increase in value as trading securities to increase the total compensation of the company The stockholders would be influenced by the proposed arrangement. Long term available for sale securities increases credit and misfortunes to stockholder's value. Tlence it will directly affect the stockholders in the market and whole. Yes. Absolutely the characterization will influence Cameron's reward. By taking the productive stocks and characterizing them as exchanging securities, the addition on those stocks considers operating income. Since his reward depends on net pay, his reward will increase. As I would like to believe that the recommended grouping or classification of Cameron is unethical Manipulating which classification a speculation falls into build your reward, to the detriment of the stockholders is not just unethical, it is against the value and beliet of traders also. ich unted States