During January 2011, Hexagon Company purchased 12,000 shares of the 200,000 outstanding common shares (no-par value) of Seven Corporation at $30 per share. This block of stock was purchased as a long-term investment. Assume that the accounting period for each company ends December 31. Subsequent to acquisition, the following data were available:

Required:
1. What accounting method should the company use? Why?
2. Give the journal entries for the company for each year (use parallel columns) for the following (if none, explain why):
a. Acquisition of Seven Corporation stock.
b. Net income reported by Seven Corporation.
c. Dividends received from Seven Corporation.
d. Market value effects at year-end.
3. Show how the following amounts should be reported on the financial statements for each year:
a. Long-term investment.
b. Stockholders€™ equity€”net unrealized gain/loss.
c.Revenues.

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2011 2012 Income reported by Seven Corporation at December 31 Cash dividends declared and paid by Seven Corporation $40,000 $60,000 during the year Market price per share of Seven common stock on December 31 60,000 80,000 29 28