1. Faye Co. owned 20% of Pen Inc.'s preference share capital and 50% of the ordinary share capital. Pen Inc.'s share capital outstanding comprised the following at year-end:

10% cumulative preference share capital - 2,000,000

Ordinary share capital - 7,000,000

Pen Inc. reported net income of $5,000,000 for the current year.

a. How much should be recorded as investment income for the current year?

b. What amount is the balance of Investment in Pen Inc. at the end of the current year?

c. How much should be recorded as investment income for the current year assuming that the preference share capital of Pen Inc. are non-cumulative?