Homestead Financial Corporation owns numerous investments in the shares of other companies. Homestead Financial completed the following long-term investment transactions:

2017

May 1 Purchased 8,000 shares, which make up 25% of the common shares of Mars Company at total cost of $450,000

Sept. 15 Received a cash dividend of $1.40 per share on the Mars investment

Oct. 12 Purchased 1,000 common shares of Mercury Corporation as a non-strategic investment, paying $22.50 per share

Dec. 14 Received a cash dividend of $0.75 per share on the Mercury investment

31 Received annual report from Mars Company. Net income for the year was $350,000.

At year-end the current fair value of the Mercury shares is $19,200. The fair value of the Mars shares is $740,000. The company reports changes in fair value through net income.

Requirements

1. For which investment is current fair value used in the accounting? Why is fair value used for one investment and not the other?

2. Show what Homestead Financial will report on its year-end balance sheet and income statement for these investments. (It is helpful to use a T-account for the Long-Term Investment in Mars Shares account.) Ignore income tax?