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Equity method for stock 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?

BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

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Chapter 15, Problem 15.10EX
Textbook Problem

Equity method for stock 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?

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