At a total cost of $6,700,000, Herrera Corporation acquired 238,000 shares of Tran Corp. common stock as a long-term 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 to record the following information on December 31:1.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? b. Why is the equity method appropriate for the Tran Corp. investment?Herrera's investment in Tran Corp. representsv of the outstanding shares of Tran Corp. An investment amount betweenandv of the outstanding common stock of the investee is presumed to represent significant influence. The equitymethod isv when the investor can exercise significant influence over the investee.

The question is based on the concept of Financial Accounting.

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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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. Tran Corp. has 700,000 shares of common stock outstanding, including the shares acquired by Herrera Corporation.

Required:

Journalize the entries by Herrera Corporation to record the following information on December 31:

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.*

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