Keelson Enterprises manufactures automobiles and occasionallymakes small investments in other corporations for long-term purposes. During its 2006fiscal year, Keelson purchased 100,000 common shares (10%) of Milton Company for $3,500,000. Also, it purchased 5% of the common stock of Holmes Company for $2,690,000. During 2006,Keelson received $500,000 of dividends from Milton.At the end of the fiscal year, theinvestment in Milton had a market value of $3,100,000. The investment in Holmes had a market value of$2,800,000. Keelson owned no other stock investments during 2006. During its 2007 fiscalyear, Keelson sold the Holmes investment for $2,900,000 and made a small investment in Balthasar Company for $1,930,000. During 2007, Keelson received $500,000 of dividends from Milton. At theend of 2007, the Milton investment had a market value of $3,350,000 and the Balthasarinvestment had a market value of $1,940,000. Keelson owned no other stock investments during2007. All of Keelson's investments were properly accounted for as long-term investments.
Required:
A. At year-end 2007, should these investments be classified asheld-to-maturity, trading, or available-for-sale? Why?
B. Prepare a schedule calculating the amount Keelson wouldreport for long-term investments on its balance sheet at the end of 2006 and 2007.
C. Prepare a schedule calculating the effect of Keelson'sinvestment activities on its income for 2006 and 2007.