Pit Bull Enterprises has numerous investments in debt and equity securities. The comptroller Christina Wecker 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. Wecker earns a bonus each year, which is computed as a percent of net income.
Wecker 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.
Required:
- Who are the stakeholders in this situation?
- Will Wecker’s bonus depend in any way on the classification of the securities? Explain.
- In your opinion, is Wecker being ethical in her method used to classify the securities? Explain.
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