On October 18, 1996 Daley, Inc. purchased 100 shares of Orthon @ $32 per share. The invest¬ ment was classified as available-for-sale securities. The shares were held throughout the remainder of 1996 and 1997, and by December 31, 1996 and 1997 the per share market price Charter 8 Investments in Equity Securities 401 P8-4 (Window dressing and the mark-to-market rule) P8-5 (Trading vs. availablefar-sale classifications) P8-6 (Inferring from balance sheet disclosures) had risen to $40 and $50, respectively. On December 31, 1997 Daley decided to change the classification from available-for-sale to trading securities. REQUIRED:

a. Provide the journal entries recorded at October 18, 1996; December 31, 1996; and December 31, 1997.

b. Assume that the investment was originally classified as trading securities, and then changed to available-for-sale on December 31, 1997. Provide the journal entries recorded at October 18, 1996; December 31, 1996; and December 31, 1997.

c. Compute the 1996 and 1997 income effects under the two assumptions.