15 3 3 At a total cost of $6,030,000, Herrera Corporation acquired 224,000 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 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 titles) 1 Tran Corp reports net income of $933,000 for the current period 2 A cash dividend of $0 27 per common share is paid by Tran Corp during the current period B Why is the equity method appropriate for the Tran Corp investment CHART OF ACCOUNTS Herrera Corporation General Ledger ASSETS 110 Cash 111 Petty Cash 120 Accounts Receivable 121 Allowance for Doubtful Accounts 131 Notes Receivable 132 Interest Receivable 141 Merchandise Inventory 145 Office Supplies 146 Store Supplies 151 Prepaid Insurance 161 Investment in Tran Corp Stock 165 Valuation Allowance for Trading Investments 166 Valuation Allowance for Available for Sale Investments 181 Land 191 Store Equipment 192 Accumulated Depreciation Store Equipment 193 Office Equipment 194 Accumulated Depreciation Office Equipment LIABILITIES 210 Accounts Payable 221 Notes Payable 231 Interest Payable 241 Salaries Payable 251 Sales Tax Payable EQUITY 311 Common Stock 312 Paid In Capital in Excess of Par Common Stock 321 Preferred Stock 322 Paid In Capital in Excess of Par Preferred Stock 331 Treasury Stock 332 Paid In Capital from Sale of Treasury Stock 340 Retained Earnings 350 Unrealized Gain (Loss) on Available for Sale Investments 351 Cash Dividends 352 Stock Dividends 390 Income Summary

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15.3 3. At a total cost of $6,030,000, Herrera Corporation acquired 224,000 shares of Tran Corp. common stock as a long-term investment. Herrera Corporation uses

15.3 3. At a total cost of $6,030,000, Herrera Corporation acquired 224,000 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. 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 titles): 1. Tran Corp. reports net income of $933,000 for the current period. 2. A cash dividend of $0.27 per common share is paid by Tran Corp. during the current period. B. Why is the equity method appropriate for the Tran Corp. investment?

CHART OF ACCOUNTS

Herrera Corporation

General Ledger

	ASSETS
110	Cash
111	Petty Cash
120	Accounts Receivable
121	Allowance for Doubtful Accounts
131	Notes Receivable
132	Interest Receivable
141	Merchandise Inventory
145	Office Supplies
146	Store Supplies
151	Prepaid Insurance
161	Investment in Tran Corp. Stock
165	Valuation Allowance for Trading Investments
166	Valuation Allowance for Available-for-Sale Investments
181	Land
191	Store Equipment
192	Accumulated Depreciation-Store Equipment
193	Office Equipment
194	Accumulated Depreciation-Office Equipment

	LIABILITIES
210	Accounts Payable
221	Notes Payable
231	Interest Payable
241	Salaries Payable
251	Sales Tax Payable

	EQUITY
311	Common Stock
312	Paid-In Capital in Excess of Par-Common Stock
321	Preferred Stock
322	Paid-In Capital in Excess of Par-Preferred Stock
331	Treasury Stock
332	Paid-In Capital from Sale of Treasury Stock
340	Retained Earnings
350	Unrealized Gain (Loss) on Available-for-Sale Investments
351	Cash Dividends
352	Stock Dividends
390	Income Summary