During January 2014, Hexagon Company purchased 12,000 of the 200,000 outstanding common shares of Smiley Corporation at $ 30 per share. This block of shares was purchased as a long- term investment. Assume that the fiscal year for each company ends on December 31. Subsequent to acquisition, the following data were available:

Required:
1. What accounting method should Hexagon Company use to record the investment in Smiley Corporation€™s common shares? Why?
2. Prepare the journal entries to record the following events for each year using parallel columns (if no entries are required, explain why):
a. Acquisition of Smiley Corporation€™s shares.
b. Net earnings reported by Smiley Corporation.
c. Dividends received from Smiley Corporation.
d. Fair value effects at year-end.
3. For each year, show how the following amounts should be reported on the financial statements of Hexagon Company:
a. Non-current investment.
b. Shareholders€™ equity€”net unrealized gains and losses.
c. Revenues.

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2015 $60,000 2014 Profit reported by Smiley Corporation at December 31 Cash dividends declared and paid by Smiley Corporation during the year Market price of Smiley Corporation's share at December 31 $40,000 60,000 80,000 29 28