A company manages a large portfolio of marketable securities and sells only stocks with substantial gains in poor income years or sells only stocks with substantial losses in good income years.This strategy is an indication of
A)securities fraud.
B)unstable portfolio management.
C)income smoothing.
D)violating security trading laws.

Question

Quizplus · Accepted Answer

This is an example of income smoothing, where the company tries to even out their reported income over different years by selectively selling stocks with gains or losses. While this can be a legitimate strategy, it may raise ethical concerns if it is done to deliberately mislead investors. This does not necessarily indicate securities fraud unless there is evidence of intentional deception or manipulation of financial statements. It also does not necessarily indicate unstable portfolio management or violating security trading laws, unless the company is acting on insider information or engaging in other illegal activities.

A Company Manages a Large Portfolio of Marketable Securities and Sells