Question

Equity method for stock investment Chart of Accounts Journal Final Question Instructions At a total cost of $6,460,000. Herrera Corporation acquired 187 000 shares of Tran Corp.common stock as a long term investiert. Herrera Corporation uses the accounting for this investment. Tran Corp has 850,000 shares of common stock outstanding, ncluding the shores cuired by Herrera Corporation ty method of 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 best 1. Tan Corp reports net income of5722,000 for the current period 2. A cash dividend of $0.33 per common share is paid by Tres Corp. during the current period B. Why is the equity method appropriate for the Than Core investment?

Answer 1

							Accounting equation
	Transaction	Date	Description	Post Ref.	Debit	Credit	Assets	Liability	Equity
A	1	31-Dec	Investment in Tran. Corp. Stock	161	$158,840		$158,840			(187,000/850,000)*722,000
			Income of Tran. Corp	621		$158,840			$158,840
	2	31-Dec	Cash	110	$61,710		$61,710			(187,000*.33)
			Investment in Tran. Corp. Stock	161		$61,710	-$61,710
B	Herrera's investment in Tran Corp represent 22% of the outstanding shares of Tran. Corp. An investment amount between 20% and 50% of the oustanding common stock of the
	investee is presumed to represent significant influence. The equity method is Appropriate when the investor can exercise signifance influence over the investee.

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