At a total cost of $2,000,000, Stieg Corporation acquired 160,000 shares of Larson Corp. common stock as

Question:

At a total cost of $2,000,000, Stieg Corporation acquired 160,000 shares of Larson Corp. common stock as a long-term investment. Stieg Corporation uses the equity method of accounting for this investment. Larson Corp. has 400,000 shares of common stock outstanding, including the shares acquired by Stieg Corporation.

a. Journalize the entries by Stieg Corporation to record the following information:

1. Larson Corp. reports net income of $1,200,000 for the current period.

2. A cash dividend of $2.00 per common share is paid by Larson Corp. during the current period.

b. Why is the equity method appropriate for the Larson Corp. investment?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...