Sandhu Travel Agency Ltd. has 400,000 common shares authorized and 120,000 shares issued on December 31, 2014. On January 2, 2015, Kang Inc. purchased shares of Sandhu Travel Agency for $40 per share. Kang intends to hold these shares as a long-term investment. Kang's accountant prepared a trial balance as at December 31, 2015, under the assumption that Kang could not exercise significant influence over Sandhu Travel Agency. Under this assumption, the trial balance included the following accounts and amounts related to the Sandhu investment:

Long-term investment .............................. $1,320,000

Dividend revenue ........................................ 90,000

Unrealized gain on long-term investment ............120,000

Instructions

(a) How many shares of Sandhu Travel Agency did Kang purchase on January 2? (Hint: Subtract the unrealized gain from the investment account.)

(b) What percentage of Sandhu Travel Agency's shares does Kang own?

(c) What was the amount of the cash dividend per share that Kang received from Sandhu Travel Agency in 2015?

(d) What was the fair value per share of the Sandhu Travel Agency shares at December 31, 2015?

(e) Assume that, after closely examining the situation, Kang's auditors determine that Kang does have significant influence over Sandhu Travel Agency and the equity method should be used. Accordingly, the investment account balance is adjusted to $1.4 million at December 31, 2015. What was the profit reported by Sandhu Travel Agency for the year ended December 31, 2015?

(f) Assuming that Kang does use the equity method, what amount will Kang report on its income statement for 2015 with regard to this investment?

(g) How would your answer to part (f) change if Kang reported under ASPE and chose to use the cost model when accounting for its investment in Sandhu because the shares did not trade in an active market?