IInvestments in securities.

Cane Company has two porfolios if investments in marketable debt securities. It classifies one as trading securities and other as available-for sale securities. Cane does not have the ability to exercise significant influence over any of the companies in either porfolio. It sold some securities from each porfolio during the year. Cane reclassified one of the securities in the available for sale category to the trading category when its fair value was less than its amortized cost. At the beginning and end of the year, the aggregate cost of each porfolio 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 porfolio.

2) Explain how Cane accounts for the reclassified security ?

3) Explain how Cane reports the effects of changes in the fair value 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 porfolio?Does this gains trading raise ethical issues?