Keelson Enterprises manufactures automobiles and occasionallymakes small investments in other corporations for long- termpurposes. During its 2006 fiscal year, Keelson purchased 100,000common shares ( 10%) of Milton Company for $ 3,500,000. Also, itpurchased 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, the investment in Milton had amarket value of $ 3,100,000. The investment in Holmes had a marketvalue of $ 2,800,000. Keelson owned no other stock investmentsduring 2006. During its 2007 fiscal year, Keelson sold the Holmesinvestment for $ 2,900,000 and made a small investment in BalthasarCompany for $ 1,930,000. During 2007, Keelson received $ 500,000 ofdividends from Milton. At the end of 2007, the Milton investmenthad a market value of $ 3,350,000 and the Balthasar investment hada market value of $ 1,940,000. Keelson owned no other stockinvestments during 2007. All of Keelsons invest-ments were properlyaccounted for as long- term investments.
A. At year- end 2007, should theseinvestments be classified as held- to- maturity, trading, oravailable- for- sale? Why?
B. Prepare a schedule calculating theamount Keelson would report for long- term investments on itsbalance sheet at the end of 2006 and 2007.
C. Prepare a schedule calculating the effect of Keelsons investment activities on its income for 2006 and2007.