Equity investment : Equity investments are stock instruments which claim ownership in the investee company and pay dividend revenue to the investor company. Equity method : Equity method is the method used for accounting equity investments which claim a significant influence of above 20% but less than 50% in the outstanding stock of the investee company. Journal entry : Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically. Debit and credit rules: Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts. Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts. To journalize : The stock investment transactions for Corporation V, under the equity method

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Answer 1

Question

Chapter 13, Problem 10EX

(a)

1.

To determine

Equity investment:

Equity investments are stock instruments which claim ownership in the investee company and pay dividend revenue to the investor company.

Equity method:

Equity method is the method used for accounting equity investments which claim a significant influence of above 20% but less than 50% in the outstanding stock of the investee company.

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To journalize: The stock investment transactions for Corporation V, under the equity method

2.

To determine

To Prepare: journal entry for dividends received from Corporation S.

(b)

To determine

To mention: The reason as to why equity method is appropriate for Corporation V

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Instructions At a total cost of $6,950,000, Herrera Corporation acquired 229,500 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 850,000 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 $974,000 for the current period. 2. A cash dividend of $0.28 per common share is paid by Tran Corp. during the current period. B. Why is the equity method appropriate for the Tran Corp. investment?

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: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 $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.B. Why is the equity method appropriate for the Tran Corp. investment?

At a total cost of $5,600,000, Herrera Corporation acquired 280,000 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 800,000 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 $600,000 for the current period. 2. A cash dividend of $0.50 per common share is paid by Tran Corp. during the current period. B. Why is the equity method appropriate for the Tran Corp. investment?

Answer 2

Question

Chapter 13, Problem 10EX

(a)

1.

To determine

Equity investment:

Equity investments are stock instruments which claim ownership in the investee company and pay dividend revenue to the investor company.

Equity method:

Equity method is the method used for accounting equity investments which claim a significant influence of above 20% but less than 50% in the outstanding stock of the investee company.

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To journalize: The stock investment transactions for Corporation V, under the equity method

2.

To determine

To Prepare: journal entry for dividends received from Corporation S.

(b)

To determine

To mention: The reason as to why equity method is appropriate for Corporation V

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Answer 3

Question

Chapter 13, Problem 10EX

(a)

1.

To determine

Equity investment:

Equity investments are stock instruments which claim ownership in the investee company and pay dividend revenue to the investor company.

Equity method:

Equity method is the method used for accounting equity investments which claim a significant influence of above 20% but less than 50% in the outstanding stock of the investee company.

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To journalize: The stock investment transactions for Corporation V, under the equity method

2.

To determine

To Prepare: journal entry for dividends received from Corporation S.

(b)

To determine

To mention: The reason as to why equity method is appropriate for Corporation V

Expert Solution & Answer

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Answer 4

Question

Chapter 13, Problem 10EX

(a)

1.

To determine

Equity investment:

Equity investments are stock instruments which claim ownership in the investee company and pay dividend revenue to the investor company.

Equity method:

Equity method is the method used for accounting equity investments which claim a significant influence of above 20% but less than 50% in the outstanding stock of the investee company.

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To journalize: The stock investment transactions for Corporation V, under the equity method

2.

To determine

To Prepare: journal entry for dividends received from Corporation S.

(b)

To determine

To mention: The reason as to why equity method is appropriate for Corporation V

Expert Solution & Answer

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Answer 5

Chapter 13, Problem 10EX

(a)

1.

To determine

Equity investment:

Equity investments are stock instruments which claim ownership in the investee company and pay dividend revenue to the investor company.

Equity method:

Equity method is the method used for accounting equity investments which claim a significant influence of above 20% but less than 50% in the outstanding stock of the investee company.

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To journalize: The stock investment transactions for Corporation V, under the equity method

2.

To determine

To Prepare: journal entry for dividends received from Corporation S.

(b)

To determine

To mention: The reason as to why equity method is appropriate for Corporation V

Answer 6

Chapter 13, Problem 10EX

(a)

1.

To determine

Equity investment:

Equity investments are stock instruments which claim ownership in the investee company and pay dividend revenue to the investor company.

Equity method:

Equity method is the method used for accounting equity investments which claim a significant influence of above 20% but less than 50% in the outstanding stock of the investee company.

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To journalize: The stock investment transactions for Corporation V, under the equity method

Answer 7

Chapter 13, Problem 10EX

(a)

1.

To determine

Equity investment:

Equity investments are stock instruments which claim ownership in the investee company and pay dividend revenue to the investor company.

Equity method:

Equity method is the method used for accounting equity investments which claim a significant influence of above 20% but less than 50% in the outstanding stock of the investee company.

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To journalize: The stock investment transactions for Corporation V, under the equity method

Answer 8

2.

To determine

To Prepare: journal entry for dividends received from Corporation S.

Answer 9

2.

To determine

To Prepare: journal entry for dividends received from Corporation S.

Answer 10

(b)

To determine

To mention: The reason as to why equity method is appropriate for Corporation V

Answer 11

(b)

To determine

To mention: The reason as to why equity method is appropriate for Corporation V

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 13 - Prob. 1DQ Ch. 13 - What causes a gain or loss on the sale of a bond...Ch. 13 - Prob. 3DQ Ch. 13 - Prob. 4DQ Ch. 13 - Prob. 5DQ Ch. 13 - Prob. 6DQ Ch. 13 - Prob. 7DQ Ch. 13 - Prob. 8DQ Ch. 13 - What are the factors contributing to the trend...Ch. 13 - Prob. 10DQ

Solution Summary: The author explains the equity method used for accounting equity investments which claim a significant influence of above 20% but less than 50% in the outstanding stock of the investee company.

Concept explainers

To Prepare: journal entry for dividends received from Corporation S.

To mention: The reason as to why equity method is appropriate for Corporation V

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Chapter 13 Solutions