Portia Enterprises manufactures automobiles and occasionally makes small investments in other corporations for long-term purposes. During its 2003 fiscal year, Portia purchased 100,000 common shares (10%) of Leonardo Company for $3,470,000. Also, it purchased 5% of the common stock of Shylock Company for $2,690,000. During 2003, Portia received $500,000 of dividends from Leonardo. At the end of the fiscal year, the investment in Leonardo had a market value of $3,100,000. The investment in Shylock had a market value of $2,800,000.

Portia owned no other stock investments during 2003. During its 2004 fiscal year, Portia sold the Shylock investment for $2,900,000 and made a small investment in Balthasar Company for $1,930,000. During 2004, Portia received $500,000 of dividends from Leonardo. At the end of 2004, the Leonardo investment had a market value of $3,350,000 and the Balthasar investment had a market value of $1,940,000. Portia owned no other stock investments during 2004.

All of Portia’s investments were properly accounted for as long-term investments.

Required

A. At year-end 2004, should these investments be classified as held-to-maturity, trading, or available-for-sale? Why?

B. Prepare a schedule calculating the amount Portia would report for long-term investments on its balance sheet at the end of 2003 and 2004.

C. Prepare a schedule calculating the effect of Portia’s investment activities on its income for 2003 and 2004.