come have a ♥♥♥ and squat with me dmitri

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Kasy Hartman is the controller for Wholemart Company, which has numerous long-term investments in debt securities. Wholemart's investments are mainly in 5-year bonds. Hartman is preparing its year-end financial statements. In accounting for long-term securities, she knows that each long-term investment must be designated as a held-to-maturity or an available-for-sale security. Interest rates rose sharply this past year causing the portfolio's fair value to substantially decline. The company does not intend to hold the bonds for the entire 5 years. Hartman also earns a bonus each year, which is computed as a percent of net income.

1. Will Hartman's bonus depend in any way on the classification of the debt securities? Explain.

2. What criteria must Hartman use to classify the securities as held-to-maturity or available-for-sale?

3. Is there likely any company oversight of Hartman's classification of the securities? Explain

Traverse County needs a new county government building that would cost $10 million. The politicians feel that voters will not approve a municipal bond issue to fund the building since it would increase taxes. They opt to have a state bank issue $10 million of tax-exempt securities to pay for the building construction. The county then will make yearly lease payments (of principal and interest) to repay the obligation. Unlike conventional municipal bonds, the lease payments are not binding obligations on the county and, therefore, require no voter approval.

1. Do you think the actions of the politicians and the bankers in this situation are ethical?

2. How do the tax-exempt securities used to pay for the building compare in risk to a conventional municipal bond issued by Traverse County?

+rep gt