Reporting Passive Investments - During January 2011, Pareto Glass Company purchased the following securities as its long-term securities available for sale investment portfolio:

D Corporation Common Stock: 11,000 shares (95,000 outstanding) at $9 per share

F Corporation Bonds: $300,000 (20-year, 8 percent) purchased at par (not to be held to maturity). Subsequent to acquisition, the following data were available:

2011	2012
Net income reported at December 31:
D Corporation	$31,000	$41,000
F Corporation	$360,000	$550,000
Dividends and interest paid during the year:
D Corporation common stock dividends (per share)	$0.70	$0.80
F Corporation bonds interest	$24,000	$24,000
Fair value at December 31:
D Corporation common stock (per share)	$8.00	$9.50
F Corporation bonds	$280,000	$290,000

Required:

1. What accounting method should be used for the investment in D common stock? F bonds? Why?

2. Give the journal entries for the company for each year in parallel columns (if none, explain why) for each of the following:

a. Purchase of the investments.

b. Income reported by D and F Corporations.

c. Dividends and interest received from D and F Corporations.

d. Fair value effects at year-end.

3. For each year, show how the following amounts should be reported on the financial statements:

a. Long-term investments.

b. Stockholders’ equity—net unrealized losses/gains.

c. Revenues.