Long-Term Investments in Equity Securities During January 2009, 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 2009:

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 2009.

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Net income: Corporation A Corporation B Dividends paid (per share): Corporation A Corporation B Market value per share at December 31: Corporation A Corporation B 2009 $190,000 80,000 $0.60 2.50 $ 25 109