During January 2014, Ka- Shing Company purchased shares of the following companies as a non-current investment:

Subsequent to acquisition, the following data were available:

Required:
1. What accounting method should be used for the investment in Q Corporation€™s common shares? R Corporation€™s preferred shares? Why?
2. Prepare the journal entries to record the following events for each year using parallel columns (if no entry is required, explain why):
a. Purchase of the investments.
b. Income reported by Q and R Corporations.
c. Dividends received from Q and R Corporations.
d. Fair value effects at year- end.
3. For each year, show how the following amounts should be reported on the financial statements of Ka-Shing Company:
a. Non- current investment.
b. Shareholders€™ equity€” net unrealized gains and losses.
c. Investment income.

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Company and Type of Share Q Corporation Common R Corporation-Preferred, non-voting Number of Shares Outstanding 90,000 20,000 Purchase 12,600 12,000 Cost per Share $5 30 2014 2015 Net earnings reported at December 31: Q Corporation R Corporation $30,000 40,000 $36,000 48,000 Dividends declared and paid during the year (per share) Q Corporation Common R Corporation Preferred $0.85 1.00 $0.90 1.10 Market value per share at December 31 Q Corporation-Common R Corporation-Preferred $4.00 $4.00 30.00 29.00