2. If the bond portfolio is classified as available for sale, what impact would this have on financial statements? If the bonds are classified as available-for-sale securities, then the portfolio of bonds would need to be adjusted to fair value. This would be recorded by using a valuation account and a realized gain (loss) account.
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Financial assets include stocks and bonds. These are fairly simple securities that can often be valued using quoted market prices. However, there are more complex financial instruments that do not have quoted market prices. These complex securities must still be valued on the balance sheet at fair value. Generally accepted accounting principles require that the reporting entity use assumptions in valuing investments when market prices or critical valuation inputs are unobservable. What are the ethical considerations in making subjective valuations of these complex financial instruments?
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