Mary Burden is the CFO of Tidewell Corporation and Tommy Brownis the Treasurer. Mary has been with the company for seven yearsand Tommy just started earlier this year. They meet to discuss theclassification of the corporation's investment portfolio. Marynotes that Tidewell Corporation is having a good year and netincome is already more than was forecasted, so she proposesinvestments that have increased in value since last year beclassified as available-for-sale. She also proposes that any thathave decreased in value be classified as trading securities. Herlogic is that this will result in some amount of reported loss, butthat net income will still be more than forecasted. Also, byclassifying the securities that have increased in value asavailable fore sale, Tidewell Corporation will have some reservegains for future periods. Tommy is not sure about Mary's proposaland thinks it would make more sense to classify the investmentsthat have increased in value as trading, and subsequently sell themto capture the profit. He also believes that classifying theinvestments that have decreased in value as trading makes moresense, which will give the investments time to recover and notimpact net income.
Answer the following questions:
#1Will what Mary and Tommy each suggest have the effect on netincome that they suggest? Why or why not?
#2Is what Mary and Tommy each propose ethical? Why or whynot?
#3If Tommy prevails and they classify the securities as heproposes for the end of the year, what would you expect TidewellCorporation to do with the two types of investments shortly afterthe classification decision is made?
#4If what should happen in #3 doesn't occur, is theclassification decision ethical? Why or why not?
