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cengagenow.com/ilrm/takeAssignment/takeAssignmentMain.do?invoker assignments&takeAssignmentSessionLocator; assignment-take&inprogress-false; lems eBook Show Me How Calculator Print Item Equity method for stock investment Chart of Accounts Journal Final Question Instructions At a total cost of s6,300,000, Herrera Corporation acquired 195,000 shares of Tran Corp. common stock as a long-term investment. Herrera Corporation uses the equity method of accounting for this investment. Tran Corp. has 750,000 shares of common stock outstanding, including the shares acquired by Herrera Corporation Required: A. Journalize the entries by Herrera Corporation on December 31 to record the following information (refer to the Chart of Accounts for exact wording of account titles): 1. Tran Corp. reports net income of $928,000 for the current period. 2. A cash dividend of s0.26 per common share is paid by Tran Coro, during the current period. B. Why is the equity method appropriate for the Tran Corp. investment? Check Wy Work 2 more Wy won uses remaining NextExplanation / Answer
A
General description
Debit
Credit
1
Tran corp reports net income of $928,000
Investment in tran corp [195000/750000*928000]
241280
Investment income
241280
2
A cash dividend of $0.26 per common share
Cash [195000*0.26]
50700
Investment in tran corp
50700
B
Why is equity method appropriate for the tran corp investment
195000/750000 = 26%
Because herrara owns 26% of shares
Herrara investment represents 26% of the outstanding shares of tran corp. An investment between 20% and 50% of outstanding common stock of the investee is presumed to represent significant influence. the equity method is appropriate when the investor can exercise significant influence over the investee
A
General description
Debit
Credit
1
Tran corp reports net income of $928,000
Investment in tran corp [195000/750000*928000]
241280
Investment income
241280
2
A cash dividend of $0.26 per common share
Cash [195000*0.26]
50700
Investment in tran corp
50700
B
Why is equity method appropriate for the tran corp investment
195000/750000 = 26%
Because herrara owns 26% of shares
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