Addison Manufacturing holds a large portfolio of debt and equity investments. The fair value of the portfolio is greater than its original cost, even though some investments have decreased in value. Sam Beresford, the financial vice president, and Angie Nielson, the controller, are near year-end in the process of classifying for the first time this investment portfolio in accordance with IFRS. Beresford wants to classify those investments that have increased in value during the period as trading investments in order to increase net income this year. He wants to classify all the investments that have decreased in value as non-trading (the equity investments) and as held-for-collection (the debt investments).
Nielson disagrees. She wants to classify those investments that have decreased in value as trading and those that have increased in value as non-trading (equity) and held-for-collection (debt). She contends that the company is having a good earnings year and that recognizing the losses will help to smooth the income this year. As a result, the company will have built-in gains for future periods when the company may not be as profitable.

Instructions
Answer the following questions.
(a) Will classifying the portfolio as each proposes actually have the effect on earnings that each says it will?
(b) Is there anything unethical in what each of them proposes? Who are the stakeholders affected by their proposals?
(c) Assume that Beresford and Nielson properly classify the entire portfolio into trading, non-trading, and held-for-collection categories. But then each proposes to sell just before year-end the investments with gains or with losses, as the case may be, to accomplish their effect on earnings. Is this unethical?