At a total cost of $1,251,600, Herrera Corporation acquired 84,000 shares of Tran Corp. common stock as a long-term investment. Tran Corp. has 300,000 shares of common stock outstanding, including the shares acquired by Herrera Corporation. a. Journalize the entries by Herrera Corporation to record the following information: If an amount box does not require an entry, leave it blank. Question Content Area 1. Tran Corp. reports net income of $2,250,000 for the current period. blank - Select - - Select - - Select - - Select - Question Content Area 2. A cash dividend of $1.60 per common share is paid by Tran Corp. during the current period. blank - Select - - Select - - Select - - Select - Question Content Area b. Why is the equity method appropriate for the Tran Corp. investment? An investment amount of the outstanding common stock of the investee is presumed to represent significant influence. The equity method is appropriate when the investor exercise significant influence over the investee.
At a total cost of $1,251,600, Herrera Corporation acquired 84,000 shares of Tran Corp. common stock as a long-term investment. Tran Corp. has 300,000 shares of common stock outstanding, including the shares acquired by Herrera Corporation.
a.
Question Content Area
1. Tran Corp. reports net income of $2,250,000 for the current period.
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Question Content Area
2. A cash dividend of $1.60 per common share is paid by Tran Corp. during the current period.
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Question Content Area
b. Why is the equity method appropriate for the Tran Corp. investment?
An investment amount
of the outstanding common stock of the investee is presumed to represent significant influence. The equity method is appropriate when the investor
exercise significant influence over the investee.
Stocks are the shares that represent fractional ownership in the company. Share of net income will be debited to investment account and will be credited to investment income account.
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