At a total cost of $6,700,000, Herrera Corporation acquired 238,000 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 700,000 shares of common stock outstanding, including the shares acquired by Herrera Corporation.Required:.1.Tran Corp. reports net income of $967,000 for the current period.2.A cash dividend of $0.29 per common share is paid by Tran Corp. during the current period. 1. Why is the equity method appropriate for the Tran Corp. investment?Herrera’s investment in Tran Corp. represents_______ of the outstanding shares of Tran Corp. An investment amount between______ and _________of the outstanding common stock of the investee is presumed to represent significant influence. The equity method isappropriate when the investor can exercise significant influence over the investee.

In this question, two transactions are mentioned, but required part is missing, i assumed as the…

Answered: At a total cost of $6,700,000, Herrera…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 25E

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At a total cost of $6,700,000, Herrera Corporation acquired 238,000 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 700,000 shares of common stock outstanding, including the shares acquired by Herrera Corporation.

Required:

1.	Tran Corp. reports net income of $967,000 for the current period.
2.	A cash dividend of $0.29 per common share is paid by Tran Corp. during the current period.

1. Why is the equity method appropriate for the Tran Corp. investment?

Herrera’s investment in Tran Corp. represents_______ of the outstanding shares of Tran Corp. An investment amount between______ and _________of the outstanding common stock of the investee is presumed to represent significant influence. The equity method isappropriate when the investor can exercise significant influence over the investee.

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