During January 2003, Danbury, Inc., acquired 40,000 shares of Corporation A common stock for $24 per share. In addition, it purchased 5,000 shares of Corporation B preferred (nonvoting) stock for $112 per share. Corporation A has 160,000 shares of common stock outstanding, and Corporation B has 12,000 shares of nonvoting stock outstanding. Danbury anticipates holding both securities for at least five years. The following data were obtained from operations during 2003:
|
2003 |
|
|
Net income: |
|
|
Corporation A |
$190,000 |
|
Corporation B |
80,000 |
|
Dividends paid (per share): |
|
|
Corporation A. |
$0.60 |
|
Corporation B |
2.50 |
|
Market value per share at December 31: |
|
|
Corporation A |
$ 25 |
|
Corporation B |
109 |
Required
1. Interpretive Question: What method should Danbury, Inc., use in accounting for the investment in Corporation A stock? Why? What accounting method should be used in accounting for Corporation B nonvoting stock? Why?
2. Prepare the journal entries necessary to record the transactions for 2003.