You have just joined a cpa firm. this is your first time working with
You have just joined a CPA firm. This is your first time working with the client. The client has asked for help in reporting some securities, and the audit manager on the job has asked you for recommendations on the reporting.
Provide a report that includes your recommendations on reporting, and its effect on carrying value and earnings in each of the following situations:
- The client has an equity security that has declined in value (i.e., the market value is less than what he or she paid for it [cost]). It is currently classified as available-for-sale, but the client would like to change its reporting to a trading security.
- The client has a combination of investments in a portfolio that are long-term investments. The portfolio has increased in value on the whole, but there is one stock whose value has fallen by more than 60%. The client thinks that this decline in value is permanent.
- The client has a portfolio of trading securities that has dropped 20% in value. He or she has another portfolio that is available-for-sale and its fair value has increased by 40%.