Keelson reporting manufactures automobiles and occasionally makes smell investments in other corporations for long-term purposes. During its 2006 fiscal 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 stock 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 a market value of $3,100,000. The investment in Holmes had a market value of $ 2,800,000. Keelson owns no other stock investments during 2006. During its 2007 fiscal year, 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 the end of 2007, the Milton investment had a market value of $ 3,350,000 and the Balthasar investment had a market value of $ 1,940,000. Keelson owned no other stock investments during 2007. All of the keelson’s investments were properly accounted for as long-term investments.

Required:

a) At year-end 2007, should these investments be classified as held to maturity, trading or available for sale? Why?

b) Prepare a schedule calculating the amount Keelson would report for long-term investments on its balance sheet at the end of 2006 and 2007

c) Prepare a schedule calculating the effect of Keelson’s investment activities on its income for 2006 and 2007.