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.a. Journalize the entries by Herrera Corporation to record the following information: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?
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.a. Journalize the entries by Herrera Corporation to record the following information: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?
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 $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.
a.
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?
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