The Claremont Corporation invests its excess cash in low-risk, dividend-paying equity securities until such funds are needed to support operations. At the beginning of the year, the company’s portfolio consisted of the following securities:

At year-end, the fair values of the three securities were as follows: BMS $82,000; JNJ $53,000; and PFE \($100,000\). Calculate the income statement effect of the company’s short-term investments 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. 

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

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Company Bristol-Myers Squibb (BMS) Johnson & Johnson (JNJ) Pfizer, Inc. (PFE). Total Cost Basis 75,000 55,000 110,000 $240,000