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The Coolidge Corporation invests excess cash in debt securities until such funds are needed to support operations. At the beginning of the year, the company
The Coolidge Corporation invests excess cash in debt securities until such funds are needed to support operations. At the beginning of the year, the companys portfolio consisted of the following debt securities:
Company CostBasis
BristolMyers Squibb BMS $
Johnson & Johnson JNJ
Pfizer, Inc. PFE
Total $
At yearend, the fair values of the three securities were as follows: BMS $; JNJ $; and PFE,
$
Required:
a Calculate the income statement effect of the companys debt securities assuming: a all securities are classified as trading; b all securities are classified as availableforsale; and c BMS and JNJ are classified as trading, while PFE is classified as availableforsale.
a Does the classification of a debt security as trading versus availableforsale affect a companys reported earnings? Will it affect the value of Coolidges share price? Will it affect the amount of income taxes that a company pays to the Internal Revenue Service?
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