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Cane Company has two portfolios of investments in mar- ketable equity securities. It classifies one as trading securities and the other as available-for-sale securities. Cane does not have the ability to exercise significant influence over any of the companies in either portfolio. It sold some securities from each portfolio during the year. The company reclassified one of the securities in the available-for-sale category to the trading category when its fair value was less than cost. At the begin- ning and end of the year, the aggregate cost of each portfolio exceeded its aggregate market value by different amounts.
Required
1. Explain how Cane measures and reports the income statement effects of the securities sold during the year from each portfolio.
2. Explain how Cane accounts for the security which it reclassified.
3. Explain how Cane reports the effects of investments in each portfolio on its balance sheet as of the end of the year and on its income statement for the year. Do not discuss the securities sold.
4. Explain gains trading. Can Cane use gains trading on either portfolio? Does gains trading raise ethical issues?
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