Chapperal Corporation has purchased two securities for its portfolio. The first is a stock investment in Sting Ray Corporation, one of its suppliers. Chapperal purchased \(10 \%\) of Sting Ray with the intention of holding it for a number of years but has no intention of purchasing more shares. The second investment is a purchase of debt securities. Chapperal purchased the debt securities because its analysts believe that changes in market interest rates will cause these securities to increase in value in a short period of time. Chapperal intends to sell the securities as soon as they have increased in value.

\section*{Instructions}

Write a memo to Gils Stiles, the chief financial officer, explaining how to account for each of these investments and the implications for reported income from this accounting treatment.