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$$s portfolio consisted of the following debt securities:

Company Cost$-$Basis

Bristol$-$Myers Squibb $($BMS$)$ $ $95,000$

Johnson & Johnson $($JNJ$)65,000$

Pfizer, Inc. $($PFE$)120,000$

Total $ $280,000$

At year$-$end, the fair values of the three securities were as follows: BMS$,$ $$93,000$; JNJ$,$ $$73,000$; and PFE,

$$110,000.$

Required:

$1.($a$)$ Calculate the income statement effect of the company$$s debt securities assuming: $($a$)$ all securities are classified as trading; $($b$)$ all securities are classified as available$-$for$-$sale; and $($c$)$ BMS and JNJ are classified as trading, while PFE is classified as available$-$for$-$sale.

$2.($a$)$ Does the classification of a debt security as trading versus available$-$for$-$sale affect a company$$s reported earnings? Will it affect the value of Coolidge$$s share price? Will it affect the amount of income taxes that a company pays to the Internal Revenue Service?