Format Question for a daydream sequence

I pulled out my copy of Trottier's The Screenwriter's Bible to check what he has to say about formatting daydreams. (If you don't have it, I highly recommend this book just for all of the formatting guidelines.) According to Trottier, you format it the way you'd format a flashback but label it as a dream. Based on how you described the daydream, I think that handling it like a quick flashback montage probably makes the most sense.

Therefore, I think it would look something like this:

INT. SCENE - DAY

Character in scene doing stuff.

Character sees sign for the Tumbleweed Inn.

QUICK DAYDREAM

The letters on the sign rearrange to form different words.

BACK TO SCENE

Character does stuff.

If you want to check Trottier, the relevant pages are 157-159 of the 5th edition.

I would say that you can show a daydream clearly first when you edit the film. In the screenplay it’s just a thing which is made of many scenes.
For Example:

Int. Classroom – Day

THE STUDENTS are bored. Some listen and some others prop their heads up. THE TEACHER tells something about chemistry.

TIM, one of the students, is affect eminently. He tries to stay awake. But his body rebels. It wanted to sleep. Again, and again his head plunges.

He can’t hamper it. His eyelids try to close again and again. He must fight it. He mustn’t sleep. But … Zzzzzzzzzz.

Ext. foreign city’s park – day (dream)

Tim sits with a BEAUTIFUL GIRL on the picnic blanket. He tries to kiss her. Yah! In a moment I have it.

TEACHER (V.O.)
(angrily)
Mr. Smith, Mr. Smith …

CUT TO:

Int. Classroom – day

Tim wakes up.

The teacher hits Tim’s table with her long ruler. She sees Tim in his eyes. Boy! You’re in big trouble.

TEACHER (cont’d)
Mr. Smith. Do you have daydreams a day dream again?

The whole class laugh.